New Regulations for Cuba’s Non-Agricultural Private Enterprises as of July 10, 2018
New Regulations for Cuba’s Non-Agricultural Private Enterprises as of July 10, 2018
Brookings, Friday, July 13, 2018
In a leap backwards, the Cuban government has published a massive compendium of tough new regulations governing the island’s struggling private enterprises. The new regulations—the first major policy pronouncement during the administration of President Miguel Díaz-Canel—appear more focused on controlling and restricting the emerging private sector than on stimulating investment and job creation, more concerned with capping wealth accumulation than in poverty alleviation.
Many small businesses that cater to foreign visitors are already suffering from Trump-era restrictions and travel warnings that have decimated the U.S. tourist trade in Havana. But the new regulations are more a product of domestic Cuban politics than foreign pressures.
On a positive note, the Cuban government promises to renew the granting of licenses for many categories of private businesses by year-end, repealing the extended suspension announced last summer. But the new regulations greatly empower government rule-makers and intrusive inspectors, casting a gray cloud over the island’s business climate. Many existing businesses are likely to retrench if not close altogether.
The private sector grew dramatically in recent years, to include nearly 600,000 owners and employees by official figures, with many more enterprising Cubans working informally; in contrast, the state sector stagnated and further decapitalized. Indeed, many thriving private businesses began to compete successfully against state entities, notably in restaurants, bars and night clubs, guest houses, construction, and transportation. The healthy wages paid by profitable private firms often eclipsed the meager salaries paid to disgruntled government officials and factory workers.
The extensive, highly detailed regulations, which go into effect in December, read like “the revenge of the jealous bureaucrat.” Drawing on a multitude of ministries and operating at all levels—national, provincial, and municipal—interagency committees will now be empowered to authorize, inspect, and regularly report upon private businesses under their jurisdictions. The regulations are replete with astoundingly specific performance requirements and innumerable legal breaches that seem crafted to allow government officials wide discrimination to impose heavy fines (or extort bribes), suspend licenses, and even seize properties.
To cite but a few such regulations: Private restaurants and guest houses must cook food at a minimum of 70 degrees Celsius for the time required for each food; day care centers must allocate at least two square meters per child, have no more than six children per attendant, and be outfitted with pristine bathroom facilities described in exquisite detail (private schools and academies are strictly prohibited); and private taxi drivers must document that they are purchasing fuel at government gas stations, rather than buying on the black market. Further, local officials can deny new licenses based on “previous analyses,” even if the proposed business plan meets all the other specifications, and can fix prices “when conditions warrant.”
The regulations could help shield state enterprises from unwanted private competition. The very ministries that stand to lose market shares are in charge of approving licenses in their sector. For example, the ministry of tourism has the lead in judging licenses for private guest houses. Appeals are possible, but to administrative authorities, not to judicial courts.
Government agencies are also seeking to reassert control over the island’s vibrant artistic communities. The regulations prohibit artists from contracting directly with private restaurants and bars; rather they must be represented by public-sector entities that charge commissions up to 24 percent of revenues. Moreover, performers must not use “sexist, vulgar or obscene language,” which if enforced could imply the banning of popular hip-hop and reggaeton songs and videos.
Perhaps most telling are the restrictive rules squarely aimed at inhibiting private capital accumulation. In a sharp turn from past practice, Cubans will now only be allowed one license for one business, effectively outlawing franchising and diversification. Capacity at restaurants and bars is capped at 50 guests. Most biting, the new regulations establish an upward-sloping wage scale (whereby wages rise as more workers are hired); hiring more than 20 workers becomes prohibitively expensive (six times the average wage). Unlike in the past, employers will now have to pay taxes on the first five workers hired as well.
Many private businesses must also record their transactions (revenues and expenditures) in an account at a government financial institution and keep three months of prospective taxes on deposit. Intended to reduce under-reporting of income, this measure will significantly raise the effective rates of taxation. Investors must also explain their sources of funds. In a country where political authority is unchecked, these financial impositions alone will discourage many potential entrepreneurs.
The Cuban authorities have repeatedly asserted their interest in attracting foreign investment, to compensate for weak domestic savings. However, foreign investors are likely to view these new regulations, even though they apply to domestically-owned firms, as indicative of an official wariness if not hostility toward private enterprise in general. Risk-averse foreign investors will also note that the Cuban government is quite capable of precipitously altering the rules of the game.
The new regulations are the first major policy initiative promulgated during the administration of President Miguel Díaz-Canel. Many of the resolutions were approved by the Council of State under Raúl Castro, prior to Díaz-Canel’s inauguration in April, but nevertheless were issued during his young tenure. Not a good sign for those hoping that Díaz-Canel, 58 years old and ostensibly representing a younger generation, might quickly place his own imprimatur over the extensive state apparatus.
The new regulations make one thing abundantly clear: The Cuban government, state-owned enterprises and the ruling Cuban Communist Party do not want to risk major competition to their own interests—economic, commercial, and political—from a potentially capital-rich, diversified emerging private sector. Apparently, perceived interests in security and stability have overruled Cuba’s own declared economic development goals.
BY NORA GÁMEZ TORRES
Miami Herald, July 10, 2018 07:01 PM
The Cuban government announced that it will start issuing licenses to open new businesses — frozen since August 2017 — but established greater controls through measures intended to prevent tax evasion, limit wealth and give state institutions direct control over the ‘self-employment’ sector
Original Article: TAXES, CONTROLS, CENSORSHIP
The Cuban government issued new measures on Monday to limit the accumulation of wealth by Cubans who own private businesses on the island. The provisions stipulate that Cubans may own only one private enterprise, and impose higher taxes and restrictions on a spectrum of self-employment endeavors, including the arts.
The government announced that it will start issuing licenses to open new businesses — frozen since last August — but established greater controls through a package of measures intended to prevent tax evasion, limit wealth and give state institutions direct control over the so-called cuentapropismo or self-employment sector.
The measures will not be immediately implemented. There is a 150-day waiting period to “effectively implement” the new regulations, the official Granma newspaper reported.
Cubans who run private restaurants known as paladares, for example, will not be able to rent a room in their home to tourists since no citizen can have more than one license for self-employment.
“There are workers who have a cafeteria and at the same time have a manicure or car wash license. … That is not possible. In practice, he is an owner who has many businesses, and that is not the essence and the spirit of the TCP [self-employment], which consists of workers exercising their daily activities,” Marta Elena Feitó Cabrera, vice minister for labor and social security, told the official Cubadebate site.
About 9,000 people, half in Havana, are affected by the measure, said the official.
In addition, all private sector workers must open an account in a state bank to carry out all their business operations. And the boteros, those who work as private taxi drivers, must present receipts to justify all their deductible expenses. Other measures curb the hiring of workers in the private sector, which currently employs 591,456 people, or 13 percent of the country’s workforce.
The government also stated it would eliminate the tax exemption for businesses that have up to five employees and would instead impose a sliding scale that increases with each worker hired. It also ordered an increase in the required minimum monthly taxes of businesses in various categories.
Government officials quoted by Granma said that the measures will increase tax collection and reduce fraud. But economists have warned that more taxes on hiring employees could dramatically hamper the development of the private sector at a critical moment. A monetary reform — which could bankrupt nearly half of the state companies, potentially leaving thousands unemployed — is expected to happen soon.
The new measures also maintain a halt on new licenses for things such as “seller vendor of soap” and “wholesaler of agricultural products,” among others.
One significant provision states that those who rent their homes to tourists and nationals may also rent to Cuban or foreign companies but “only for the purpose of lodging.” That would presumably prevent renters from subletting units.
The “rearrangement” of self-employment, as the new measures were framed in the official media, reduces licenses by lumping together various elements of one industry while limiting another. For example, while there would be only one license for all beauty services, permits for “gastronomic service in restaurants, gastronomic service in a cafeteria, and bar service and recreation” were separated — meaning that one can own a restaurant but not also a bar.
To increase controls, each authorized activity will be under the supervision of a state ministry, in addition to the municipal and provincial government entities, which can intervene to set prices. The level of control reaches such extremes that the Official Gazette published a table with classifications on the quality of public restrooms and the leasing rates that would have to be paid by “public bathroom attendants,” one of the authorized self-employment categories. Some public bathrooms are leased by the state to individuals who then are responsible for upkeep and make their money by charging users a fee.
The regulations are the first significant measures announced by the government since Miguel Díaz-Canel was selected as the island’s new president in April. But the proposed regulations had been in the making for months by different government agencies, according to a draft of the measures previously obtained by el Nuevo Herald. The announcement comes just as the Cuban economy is struggling to counter the losses brought by the crisis in Venezuela — its closest ally — and the deterioration of relations with the United States.
The new measures could also have a significant impact on the cultural sector. The decree may be used by the Ministry of Culture to increase control over artists and musicians and impose more censorship in the country.
Decree 349 of 2018 establishes fines and forfeitures, as well as the possible loss of the self-employment license, to those who hire musicians to perform concerts in private bars and clubs as well as in state-owned venues without the authorization of the Ministry of Culture or the state agencies that provide legal representation to artists and musicians.
Many artists in urban genres such as reggaeton and hip-hop, who have been critical of the Cuban government, do not hold state permits to perform in public. However, many usually perform in private businesses or in other venues.
Painters or artists who sell their works without state authorization also could be penalized.
The measures impose sanctions on private businesses or venues that show “audiovisuals” — underground reggaeton videos or independent films, for example — that contain violence, pornography, “use of patriotic symbols that contravene current legislation,” sexist or vulgar language and “discrimination based on skin color, gender, sexual orientation, disability and any other injury to human dignity.”
The government will also sanction state entities or private businesses that disseminate music or allow performances “in which violence is generated with sexist, vulgar, discriminatory and obscene language.”
Even books are the target of new censorship: Private persons, businesses and state enterprises may not sell books that have “contents that are harmful to ethical and cultural values.”
Boulder, CO: First Forum Press, 2015. 373 pp.
By Archibald R. M. Ritter and Ted A. Henken
Review by Sergio Díaz-Briquets,
Cuban Studies, Volume 46, 2018, pp. 375-377, University of Pittsburgh Press
The small business sector, under many different guises, often has been, since the 1960s, at the center of Cuban economic policy. In some ways, it has been the canary in the mine. As ideological winds have shifted and economic conditions changed, it has been repressed or encouraged, morphed and gone underground, surviving, if not thriving, as part of the second or underground economy. Along the way, it has helped satisfy consumer needs not fulfilled by the inefficient state economy. This intricate, at times even colorful, trajectory has seen the 1968 Revolutionary Offensive that did away with even the smallest private businesses, modest efforts to legalize self-employment in the 1979s, the Mercados Libres Campesinos experiment of the 1980s, and the late 1980s ideological retrenchment associated with the late 1980s Rectification Process.
Of much consequence—ideologically and increasingly economically—are the policy decisions implemented since the 1990s by the regime, under the leadership of both Castro brothers. Initially as part of Special Period, various emergency measures were introduced to allow Cuba to cope with the economic crisis precipitated by the collapse of the communist bloc and the end of Soviet subsidies. These early, modest entrepreneurial openings were eventually expanded as part of the deeper institutional reforms implemented by Raúl upon assuming power in 2006, at first temporarily, and then permanently upon the resignation of his brother as head of the Cuban government.
In keeping with the historical zigzag policy pattern surrounding small businesses activities—euphemistically labeled these days as the “non-state sector”—while increasingly liberal, they have not been immune to temporary reversals. Among the more significant reforms were the approval of an increasing number of self-employment occupations, gradual expansion of the number of patrons restaurants could serve (as dictated by the allowed number of chairs in privately owned paladares), and the gradual, if uneven, relaxation of regulatory, taxing, and employment regulations. Absent has been the authorization for professionals (with minor exceptions, such as student tutoring) to privately engage in their crafts and the inability to provide wholesale markets where self-employed workers could purchase inputs for their small enterprises.
The authors of this volume, an economist and a sociologist, have combined their talents and carefully documented this ever-changing policy landscape, including the cooperative sector. They have centered their attention on post–Special Period policies and their implications, specifically to “evaluate the effects of these policy changes in terms of the generation of productive employment in the non-state sector, the efficient provision of goods and services by this emergent sector, and the reduction in the size and scope of the underground economy” (297).
While assessing post-1990 changes, Entrepreneurial Cuba also generated a systematic examination of the evolution of the self-employment sector in the early decades of the revolution in light of shifting ideological, political, and economic motivations. Likewise, the contextual setting is enhanced by placing Cuban self-employment within the broader global informal economy framework, particularly in Latin America, and by assessing the overall features of the second economy in socialist economies “neither regulated by the state nor included in its central plan” (41). These historical and contextual factors are of prime importance in assessing the promise and potential pitfalls the small enterprise sector confronts in a changing Cuba.
Rich in its analysis, the book is balanced and comprehensive. It is wide ranging in that it carefully evaluates the many factors impinging on the performance of the small business sector, including their legal and regulatory underpinnings. The authors also evaluate challenges in the Cuban economic model and how they have shaped the proclivity for Cuban entrepreneurs to bend the rules. Present is a treatment of the informal social and trading networks that have sustained the second economy, including the ever-present pilfering of state property and the regulatory and transactional corruption so prevalent in Cuba’s centralized economy.
While none of the above is new to students of the Cuban economy—as documented in previous studies and in countless anecdotal reports—Ritter and Henken make two major contributions. First, they summarize and analyze in a single source a vast amount of historical and contemporary information. The value of the multidisciplinary approach is most evident in the authors’ assessment of how the evolving policy environment has influenced the growth of paladares, the most important and visible segment of the nonstate sector. By focusing on this segment, the authors validate and strengthen their conclusions by drawing from experiences documented in longitudinal, qualitative case studies. The latter provide insights not readily gleaned from documentary and statistical sources by grounding the analysis in realistic appreciations of the challenges and opportunities faced by entrepreneurial Cubans. Most impressive is the capacity of Cuban entrepreneurs to adapt to a policy regime constantly shifting between encouraging and constraining their activities.
Commendable, too, is the authors’ balanced approach regarding the Cuban political environment and how it relates to the non-state sector. Without being bombastic, they are critical of the government when they need to be. One of their analytical premises is that the “growth of private employment and income represents a latent political threat to state power since it erodes the ideals of state ownership of the means of production, the central plan, and especially universal state employment” (275).
This dilemma dominates the concluding discussion of future policy options. Three scenarios are considered possible. The first entails a policy reversal with a return to Fidel’s orthodoxy. This scenario is regarded as unlikely, as Raúl’s policy discourse has discredited this option. A second scenario consists of maintaining the current course while allowing for the gradual but managed growth of the non-state sector. While this might be a viable alternative, it will have limited economic and employment generation effects unless the reform process is deepened by, for example, further liberalizing the tax and regulatory regimes and allowing for the provision of professional services.
The final scenario would be one in which reforms are accelerated, not only allowing for small business growth but also capable of accommodating the emergence of medium and large enterprises in a context where public, private, and cooperative sectors coexist (311). As Ritter and Henken recognize, this scenario is unlikely to come to fruition under the historical revolutionary leadership, it would have to entail the resolution of political antagonisms between Washington and Havana, and a reappraisal by the Cuban government of its relationship with the émigré population. Not mentioned by Ritter and Henken is that eventual political developments—not foreseen today—may facilitate the changes they anticipate under their third scenario.
In short, Entrepreneurial Cuba is a must-read for those interested in the country’s current situation. Its publication is timely not only for what it reveals regarding the country’s economic, social, and political situation but also for its insights regarding the country’s future evolution.
Table of Contents,
List of Charts and Figures
Chapter I Introduction
Chapter II Cuba’s Small Enterprise Sector in International and Theoretical Perspective
Chapter III Revolutionary Trajectories, Strategic Shifts, and Small Enterprise, 1959-1989
Chapter IV Emergence and Containment During the “Special Period”, 1990-2006
Chapter V The 2006-2011 Policy Framework for Small Enterprise under the Presidency of Raul Castro
Chapter VI The Movement towards Non-Agricultural Cooperatives
Chapter VII The Underground Economy and Economic Illegalities
Chapter VIII Ethnographic Case Studies of Microenterprise, 2001 vs. 2011
Chapter IX Summary and Conclusions
Sarah Marsh FEBRUARY 22, 2018 / 7:08 PM
HAVANA (Reuters) – A draft of new Cuban economic regulations proposes increasing state control over the private sector and curtailing private enterprise, a copy of the document seen by Reuters showed.
The tightening may signal that the ruling Cuban Communist Party fears that free market reforms introduced eight years ago by President Raul Castro may have gone too far, amid a broader debate about rising inequality.
The draft document, circulating among Cuba experts and private entrepreneurs, goes beyond proposed restrictions announced in December. For example, it would allow homes only one license to operate a restaurant, cafeteria or bar. That would limit the number of seats per establishment to 50. Many of Havana’s most successful private restaurants currently hold several licenses enabling them to have a seating capacity of 100 or more.
There is uncertainty over the direction of economic policy generally as Cuba prepares in April to mark the end of six decades of rule by Castro and his older brother Fidel, who stood down formally as a leader in 2008. That has been heightened by U.S. President Donald Trump partially rolling back the Obama-era detente with the United States.
The head of the Communist Party’s reform commission, Marino Murillo, announced restrictions on the private sector in December, some of them included in the new document. But the draft regulations go into greater detail and show how far the push back could go. “The decree strengthens control at a municipal, provincial and national level” over the private sector, according to the 166-page document, dated Aug. 3, 2017 and signed by Marcia Fernández Andreu, deputy chief of the secretariat of Cuba’s Council of Ministers.
The document said resolutions were drafted by the reform commission and were being sent to provincial and national organs of administration for consultation. Reuters could not independently verify its authenticity. Cuban authorities did not immediately respond to a request for comment.
Some analysts said they suspected the draft was leaked to gauge public opinion and could be revised.
The regulations state that measures that will apply to infractions will be more “rigorous.”
The government has increased criticism of wealth accumulation over the past year and gone on the offensive against tax evasion and other malpractices in the private sector.
The number of self-employed Cubans soared to 567,982 as of the middle of last year, versus 157,731 in 2010 at the start of the reform process designed to boost Cuba’s centrally planned economy. Private sector workers now make up roughly 12 percent of the workforce, but the prosperity of some Cuban entrepreneurs, particularly those working in the tourist sector and receiving hard currency, has become a source of tension. The average state monthly wage is $30, the same sum a B&B owner can charge for a night’s stay.
The restrictions unveiled by Murillo in December included limiting business licenses to a single activity per entrepreneur.
Some entrepreneurs had hoped they could get around that by transferring business licenses, for activities as diverse as manicures or bookkeeping, to family members.
It was unclear from the draft document whether the measures would be applied retroactively.
Murillo said in December the number of categories in which self employment would be permitted would be reduced and in some cases consolidated. For example, manicurist, masseuse and hairdresser would fall under an expanded beauty salon license. The draft lists 122 categories, down from approximately 200 previously.
The document calls for a new division under the Ministry of Labour to administer and control self-employed work.
Mario A. Gonzalez-Corzo and Orlando Justo, The City University of New York
The Journal of Private Enterprise 32(2), 2017, 45–82
The expansion of private self-employment is one of the main economic measures implemented by the Cuban government since 2010 to update its socialist economy under a unique brand of “reform socialism.” State policies (a “push factor”), as well as economic incentives and the desire for greater economic independence (“pull factors”) have contributed to the remarkable growth of self-employment in Cuba since 2010. While employment in the state sector has declined significantly (13 percent) since 2010, self-employment has grown by more than 187 percent, and its share of total employment has increased from 3 percent to close to 9 percent. Despite these advances, Cuba’s self-employed workers face significant obstacles that limit their growth and potential economic contributions. In addition to addressing these challenges and obstacles, ensuring the success of Cuba’s self-employment reforms requires re-conceptualizing the state’s attitude toward self-employed workers and their potential contributions to economic development and growth.
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.
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.
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
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
Presented at Florida International University, Cuban Research Institute Conference: “Beyond Perpetual Antagonism: Re-imagining U.S. – Cuba Relations.”
February 24, 2017