Tag Archives: Self-Employment

Cuba to open state-run wholesaler for private companies

Posted on March 8, 2013 by Arch Ritter

Thursday Mar 7, 2013

By Marc Frank

HAVANA, March 7 (Reuters) – Cuba established on Thursday a state-run wholesale company to sell food products, industrial and other consumer goods to private companies and the state sector, a step aimed at meeting a key demand of local entrepreneurs.

The new company was just the latest indication that President Raul Castro plans to create a strong private sector in retail services and farming as part of a broader reform of the Soviet-styled economy.

Since taking over for his brother Fidel in 2008, he has been lifting some restrictions on civil liberties, such as travel and the sale and purchase of private property, as well as revamping the state-dominated economy into a more mixed and market friendly one.

More than 200,000 small businesses have opened since Cuba liberalized regulations on them in 2010 and the number of entrepreneurs and their employees was 370,000 at last count.

Cuentapropista: now with access to inputs at wholesale prices?

“This step is long overdue and promises to remove a serious disadvantage faced by small entrepreneurs,” said Phil Peters, a Cuba expert at the Virginia-based Lexington Institute who has closely followed the reforms.

“It is the latest sign that the government wants the private sector to grow and needs it to create jobs for its reform program to succeed,” he added.

At the close of 2012 there were 1,736 private restaurants, 5,000 bed and breakfasts, and thousands of cafeterias, pizzerias and snack shops, according to the government.

Business owners have long complained that they must purchase supplies at state retail shops, while their state competitors purchase at more competitive wholesale prices, a problem authorities have repeatedly promised to remedy.

Thursday’s official Gaceta published an internal trade ministry resolution bringing together a number of companies into a new state holding company, the “Food, Industrial and Other Consumer Goods Trading Company.”

The resolution, which when published became law, stated the company would attend to both the state and “non-state” sectors.

State-run companies control all foreign and wholesale trade in Cuba and have been prohibited from selling to the private sector.

It was not clear how long it would take to set up the new company.

On Tulipan Street in the New Vedado district of Havana, a busy area with many private food vendors, no one knew about the new company, but all agreed it would be welcome.

“This is what we have been waiting for and its good they are finally doing something,” said Ofelia Rodriguez, 45, who sells pastries.

“I guarantee you, that if the prices are reasonable I can lower those I put on my products,” she said.

One woman selling soda, sandwiches and snacks nearby, said she would pass judgment once the company was in operation.

“For me, the issue isn’t if they open a wholesale outlet, but what they are going to sell and at what price,” said Eneida, 50, asking that her last name not be published.

“We have to wait and see if this is to help us meet our needs or pick our pockets of the little we make.” (Editing by Jackie Frank)

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Cuba’s ‘resale’ economics: The island’s halfway capitalism has trapped Cubans between private business and the state economy.

Posted on January 23, 2013 by Arch Ritter

The island’s halfway capitalism has trapped Cubans between private business and the state economy.

Nick Miroff, January 23, 2013.

Original Article here:  Cuba’s ‘resale’ economics

HAVANA, Cuba — Cracker Man’s cry echoes down the streets of Havana’s Buena Vista neighborhood, trailed by the clatter of his shopping cart over potholes.

“Crackers! Crackers!” he barks. “Fresh from the oven!”

He’s one of roughly 400,000 Cubans now working as state-licensed entrepreneurs in the communist country’s small but growing private sector.

Cracker Man, as he’s known in the neighborhood (“el Galletero”), sells his product for about $1 a bag. He doesn’t make the crackers, but buys them from the state-owned bakery.

He’s what Cubans refer to as a “revendedor,” a reseller who buys scarce state-subsidized items from government stores to sell at a mark-up.

That’s made many people here angry. Complaints abound in the “letters to the editor” section of Cuba’s Communist Party newspaper Granma, where resellers are disparaged as parasites and good-for-nothing speculators whose main contribution to the economy is to make basic products more expensive for everyone.

They’re also entirely the creation of Cuba’s new halfway capitalism.

Raul Castro’s recent reforms — the government calls them “updates” — have provided a place for market forces to exist alongside the centrally planned, state-controlled economy. Cubans have been granted new opportunities to become tradesman, DVD vendors, pizza makers and licensed small-scale retailers whose tiny shops and stalls have bloomed along Cuba’s main streets and thoroughfares.

Other entrepreneurs navigate pushcarts through the streets as itinerant peddlers, hawking goods under the hot Caribbean sun.

The government wants the private commerce to stimulate Cuba’s moribund economy and substitute costly imports. But experts say the authorities have yet to take the next necessary step: allowing entrepreneurs to innovate and manufacture their own products.

Cracker Man, for instance, has nowhere to buy the kind of industrial ovens, bakery equipment and wholesale supplies he’d need to make crackers. Shipping those items from abroad would trigger steep import duties, never mind the logistical obstacles.

“We still haven’t created the mechanisms for a productive economy,” says economist Julio Diaz Vazquez, a Soviet-trained expert on China and Vietnam’s so-called market socialism. He criticizes the government for wanting to encourage entrepreneurship while tightly controlling it through an obtuse bureaucratic regulatory system.

He believes that’s a lost cause. “You can’t play games with the market,” he says.

The authorities say they want to sharply reduce the number of Cubans working in low-paid, unproductive government jobs by moving them into cooperatives and small-scale private businesses.

They’re setting up pilot programs to convert state-run enterprises into worker-managed cooperatives, and have expanded the range of occupations for which Cubans are allowed to obtain self-employment licenses.

But the list remains very small, with fewer than 200 officially sanctioned professions from which Cubans can choose, including obscure jobs such as “party planner” and “palm-tree pruner.”

Not the kind of thing to lift millions out of poverty or free Cuba from having to import soap, snack foods and other bare necessities on which the government spends billions of dollars abroad while its own state-run manufacturing sector withers.

Many of the newly licensed entrepreneurs sell hardware-store items and household essentials such as bleach and dishwashing detergent. As their stalls have proliferated, many of the items they sell are disappearing from state stores because private vendors are rushing to buy up supplies. The government says it’s working to set up wholesale markets to supply the new businesses, but it has yet to do so, with a few exceptions. The authorities seem nowhere close to allowing island residents to invest in the kind of infrastructure that could help give rise to private manufacturing and industry.

Until that happens, economists say, resale economics will continue to rule.

In one area of Havana known as the La Copa, private vendors offer plumbing supplies and other items not available in the state-owned hardware store next door.

Some of their goods are imported while others — such as crudely fashioned pipe fittings — are made on the island. Like most everywhere else, the rest are bought in government-owned stores.

The vendors respond to criticism about selling state-manufactured goods at higher prices saying that as long as they can show receipts proving they acquired the items legally, there’s nothing illegal about reselling them.

“I’m providing a service to my clients and to the government,” says Yormani Alayu, a plumbing-supply vendor who says he pays taxes and goes to great lengths to acquire scarce materials. He points to several rolls of flexible plastic tubing that would be nearly impossible to find in state-run stores.

“These are from Las Tunas,” he says of a city more than 400 miles from Havana.

One customer, Tania Alvarez, says she appreciates personal attention from private vendors, in contrast to the poorly paid clerks at government stores who are often indifferent toward shoppers, if not surly.

“I also appreciate the convenience,” she adds. “I don’t have to go all over town to look for these things.” She says she doesn’t mind paying slightly more.

Other resellers says they’re adding value to products they acquire from state stores.

A 21-year-old hardware vendor named Moises Amador points to colorful rum bottles on his table filled with different kinds of paint, each labeled with instructions. The paint is sold by the gallon in government stores, he explains, but often clients don’t need to buy that much. “And not everyone can afford a whole gallon,” he adds.

“I’m providing a service,” he says somewhat defensively. “I make my own labels and print them. I buy the bottles from a recycler. It’s an investment I make.”

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How Capitalist Are the Cubans?

Posted on December 3, 2012 by Arch Ritter

By DAMIEN CAVE, New York Times, December 1, 2012

Original article here: How Capitalist Are the Cubans?

Óscar Espinosa Chepe: “The battle for ideas was the most important battle, and they’ve lost.”

A man in his shoe repair shop in the doorway of his home. New business regulations have allowed thousands of citizens to make money for themselves for the first time since 1959.

IT was just a small sign, red, round and electrified, advertising homemade pizza — the kind of thing no one would notice in New York or Rome. But in Havana? It was mildly amazing.

Cuba, after all, has been dominated for decades by an all-consuming anticapitalist ideology, in which there were only three things promoted on billboards, radio or TV: socialism, nationalism, and Fidel and Raúl Castro. The pizza sign hanging from a decaying colonial building here represented the exact opposite — marketing, the public search for private profit.

And it wasn’t just tossed out there. Unlike the cardboard efforts I’d seen in the same poor neighborhood on a visit to Cuba last year, the sign cost money. It was an investment. It was a clear signal that some of Cuba’s new entrepreneurs — legalized by the government two years ago in a desperate attempt to save the island’s economy — were adapting to the logic of competition and capitalism.

Arts and Crafts Market, Avenida (G) de los Presidentes, 1995

But just how capitalist are Cubans these days? Are they embracing what Friedrich Hayek described as the “self-organizing system of voluntary cooperation,” or resisting?

“It’s a combination,” says Arturo López Levy, a former analyst with the Cuban government now a lecturer at the University of Denver. “When more people get more proactive and more assertive, then other people — whether they like it or not — have to do the same. They have to compete. I think that’s the dynamic.”

Indeed, like Iraq, Russia, Mexico or other countries that experienced decades of dictatorial rule that eventually ended, Cuba today is a society marked by years of abuse, divided and uncertain about its future. The changes of the past few years — allowing for self-employment, freer travel, and the buying and selling of homes and cars — have been both remarkable and extremely limited. The reasons small things like signs matter so much here is because everyone is concerned with momentum, and no one seems to know whether Cuba is really on the road to capitalism, as The Economist asserted in March, or if the island is destined to simply sputter along, with restrained capitalism for a few and socialist subsistence for the rest.

The debate is all the more complicated because the same leaders who rejected capitalism for so long are now the ones trying to encourage people to try it out. Raúl Castro was notoriously the revolution’s most loyal Communist; now, as the country’s president, he is the main booster for free market reforms. On one hand, a recent gathering of Cuba’s Communist Party earlier this year included a session on overcoming prejudices against entrepreneurs; on the other, Raúl Castro has said he would “never permit the return of the capitalist system.”

“They are kind of schizophrenic,” says Ted Henken, a Cuba expert at Baruch College. “They are saying they are changing, but they treat these things as gifts and not as rights.”

And yet, there is no longer any denying that pockets of controlled capitalism are emerging in Cuba. In Havana, in particular, small businesses are everywhere. Entire urban industries, including taxis and restaurants, are being transformed through a rush of new entrants, who are increasing competition for customers, labor and materials. Even the most elemental tasks that used to be managed by the state — such as buying food — are increasingly in the hands of a private system that sets its own prices based on supply and demand.

Though the initial burst of activity has slowed, some experts say the explosion in commerce showed just how capitalist Cubans were all along. Of the roughly 350,000 people licensed to be self-employed under the new laws by the end of 2011, 67 percent had no prior job affiliation listed — which most likely means they were running underground businesses that then became legitimate.

Some of the most successful entrepreneurs are optimistic about Cuba’s becoming more open to free market ideas. Héctor Higuera Martínez, 39, the owner of Le Chansonnier, one of Havana’s finest restaurants (the duck is practically Parisian), says that officials are “starting to realize there is a reason to support private businesses.” He has given people work, for example, and he brings in hard currency from foreigners, including Americans.

“Before, we had nothing,” he said. “Now we have an opportunity.”

He is doing everything he can to make the most of it. When we met one night at the restaurant, he had already written up several pages of notes and charts explaining what his industry needed to grow — from wholesale markets to improved transportation for farmers to an end to the American trade embargo to changes in the Cuban tax code. In an ingeniously cobbled-together kitchen, in which only one of three ovens worked, he mostly seemed to salivate at the thought of vacuum packing so his meals could be delivered more efficiently.

HE was about as capitalist as it gets. But will his ideas ever be adopted? Like everyone else, he faces severe limits. He can hire no more than 20 employees, for example. He does not have access to private bank loans, and the government has shown little inclination to let people like Mr. Higuera succeed on a grand scale.

Instead, when success arrives, the government seems to get nervous. This past summer, officials shut down a thriving restaurant and cabaret featuring opera and dance in what had been a vacant lot, charging the owner with “personal enrichment” because he charged a $2 cover at the door. A news article from Reuters had described it as Cuba’s largest private business. A few days later, it was gone, along with 130 jobs.

The Castro government has tried to keep a lid on innovation in other ways, too. It has not allowed professionals like lawyers and architects to work for themselves. And its efforts at political repression have focused over the past few years on innovative young people seeking space for civil discourse in public and online — the blogger Yoani Sánchez, or Antonio Rodiles, director of an independent project called Estado de Sats, who was arrested in early November and released last week after 18 days in jail.

So for now, what Cuba has ended up with is handcuffed capitalism: highly regulated competitive markets for low-skilled, small family businesses. What economic freedom there is has mostly accrued to those whose main ambition is making and selling pizza.

Which again raises the question: is Cuba really heading toward capitalism or not? Skeptics are easy to find. “Every place in the world that has had real change, it has changed because the regime itself has allowed some significant openings and the door has been pushed wide open,” says Senator Robert Menendez, Democrat of New Jersey. “That’s not what’s happening here.”

Many Cubans say they are hesitant to let go of a reliable system summed up by a common joke: “We pretend to work, they pretend to pay us.” Taxi drivers told Mr. López Levy that they were working harder for less money because of increased competition. A farmer I met at the wholesale market outside Havana equated capitalism with higher prices, and said that the government needed to intervene.

But mostly, this is an aging crowd and Mr. López Levy — who still has friends and relatives in government — says that even among Cuban bureaucrats, the mentality is changing. If so, more capitalism may be inevitable. Because with every new entrepreneur it licenses, Cuba becomes less socialist, less exceptional, less of a bearded rebel raising its fist against the horrors of Yankee capitalism. In the eyes of some Cubans, the jig is already up.

“The government has lost the ideological battle,” said Óscar Espinosa Chepe, a state-trained economist who was sent to jail in 2003 for criticizing the government. “The battle for ideas was the most important battle, and they’ve lost.”

Art market, Plaza de la Catedral. 1994

Arts and Crafts Market, Malecon, 2006

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

Posted on November 27, 2012 by Arch Ritter

Dr.  Juan Triana Cordoví, Universidad de la Habana

November 15, 2012

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

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

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

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

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

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

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

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

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

II. “Cuentapropismo” beyond “cuentapropismo”

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

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

Table 1. Employment Dynamics

         2008    2009      2010      2011

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

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

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

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

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

Source: ONEI, Anuario estadístico de Cuba 2011.

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

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

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

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

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

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

 III. Institutionalis m and “cuentapropismo”

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

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

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

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

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

• Conferred the status of taxpayers and Social Security recipients.

• Authorized access to bank financing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mercado Atesanal, on the Malecon, photo by Arch Ritter

Bibliography.

Castro R. Periódico Granma, 20-12-10

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

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

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

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

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

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

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

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

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

Posted on September 17, 2012 by Arch Ritter

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

Original Essay Here: The Havana Genius Bar

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

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

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

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

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

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

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

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

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

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

 

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Camila Piñeiro Harnecker May 2012, “Non-state enterprises in Cuba : current situation and prospects”

Posted on September 10, 2012 by Arch Ritter

Below is a Power Point Presentation on  “Non-state enterprises in Cuba current situation and prospects” by Camila Piñeiro Harneck erof the Centro de Estudios sobre la Economia Cubana, Universidad de la Habana. It was presented at the  “Seminar on Prospects for Cuba’s Economy” at the Bildner Center, City University of New York, on May 21, 2012.

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The complete original Presentation is located here: “Non-State Enterprises in Cuba”, Camila Piniero Harnecker, 2011 .

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Emilio Morales and Joseph L. Scarpaci, “Bring on the [Cuban] college graduates!”

Posted on September 3, 2012 by Arch Ritter

Original Essay from the Morales Scarpaci  Havana Consulting Group web site here: “Bring on the [Cuban] college graduates!”

The Cuban government slammed on the brakes when it recently scrapped plans to allow private wholesaling and let skilled workers strike out on their own.

 Vice-Minister of Work and Social Security, José Barreiro’s announcement last week signals a strong reversal of reforms that began in 2010. He also stated that jobs that had been previously off limits to private workers –auto-body repairers, floor polishers, aluminum product vendors, rust removers, welders, and confectioners—are now legal trades.

But what about software engineers, tutors and teachers, and other skilled workers?

The new announcement shows resistance to change and the lack of a strategic plan. Both moves are intolerant of free-market competition among the island’s emerging private sector.

President Raúl Castro’s recent trips to China and Vietnam show concern about adapting the magic formula from these two key allies. The Asian answer was simple but it is only part of a recipe for success: open up to foreign capital, liberalize all economic sectors, and let skilled, professional workers earn a living either on their own or in small enterprises.

Vice Minister Barreiro described the ‘new’ changes this way: “[they] are designed for urban cooperatives, a different kind of organization compared to self-employment, [but the cooperatives] will have greater flexibility and work like the state-run beauty shops did where the shops were passed on to its workers.”

We argue that this move is bound to fail. The track record speaks for itself: the classic failures of both the sugar-cane and non-sugar cane UBPCs (a type of cooperative) should not be forgotten by the Cuban government.

Unexplainable contradictions.

A priority two years ago was the plan to shed 2 million workers from public payrolls over the course of five years.  One hundred eighty-three private trades were approved by the Cuban Communist Party to absorb downsized workers. However, the limitations of private-sector work, inflexible laws, high taxes, the continuation of a dual currency system (pesos and CUCs), and poor conditions to acquire inputs have thwarted these efforts.  So how can the government send layoff notices to 2 million workers if it cannot nurture a private sector to employ them? The Nanny State is unwilling to cede economic space that it has dominated for more than 50 years.

A work break in a private sector barber shop, Havana, March 2011, photo by Arch Ritter

How can you build a private sector without private wholesalers?

This is a major weakness of the Cuban model. No country can develop a sustained private sector without wholesalers. Failure to do so will further the pattern of stealing from public institutions and stimulate the black market.

While the mindset of Cuban workers needs to change to adapt to these new measures, both the laws and thinking of the Cuban governments must also adjust if real reform is to take root.

We suspect these observations are not lost on the Cuban leadership because in recent years, hundreds of high-level Cuban scholars have been traveling around the United States, Asia and Europe to gather first-hand observations about what constitutes successful development. They file reports to myriad agencies when they return. Are the polítcos and decision makers reading these reports?

Economic reforms without professionals and technology: Mission Impossible The National Statistics Office (ONE) in Havana claims there are 6.8 million working-age Cubans, of which, about one-fifth are college graduates. So why doesn’t the state allow them (about 1.5 million workers) to work in trades that maximize their skills and training? White-collar and skilled workers drive economic development, and failure to engage them will doom the Cuban economic model.

Remember the fiber-optic cable laid between Cuba and Venezuela? Well, it has been idle for over a year even though it –along with other infrastructure and reforms—could play a key role in creating high-tech work and jump-starting the economy.

Cuban college graduates are needed in housing construction, agriculture, selling automobiles, supply-chain management and distribution channels, tourism development, the food industry, and a plethora of service-sector jobs.

Tapping into college-trained workers will require a change in the mindset of the Cuban leadership. Triggering this new thinking is the main dilemma in changing the economic model. Failure to do so will only produce a “light” version of the economic reforms spelled out in last year’s VI Cuban Communist Party meetings and attendant laws that have been approved in recent years.

Let the college grads work!

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The authors are principals at The Havana Consulting Group LLC and authored Marketing without Advertising: Brand Preference and Consumer Choice in Cuba. Scarpaci chairs the Marketing and Management Department in the West College of Business at West Liberty University, West Liberty, WV.

 

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An Up-Date on Cuba’s Small Enterprise Reforms: “Ups and Downs of Self-Employment”

Posted on August 16, 2012 by Arch Ritter

August 14, 2012 . Fernando Ravsberg. HAVANA TIMES

Original: Avances y vicisitudes de los trabajadores autónomos en Cuba

he Deputy Minister of Labor and Social Security, Jose Barreiro, explained to us that self-employment in Cuba is a “measure adopted while thinking of people coming from the overly staffed government sector as well as others who are not occupationally engaged.”

He was referring to those people who are laid off or are currently unemployed, though government officials always avoid using those terms. Nor do they like to deal with the issue of low wages, even though most people and President Raul Castro consider this a crucial issue.

Barreiro talked about greater flexibility in permitting activities that were previously banned and new approaches, such as urban cooperatives, but he confirmed that self-employment by university graduates will continue to be prohibited.

The deputy minister recognizes that the lack of products and supplies for the self-employed leads to black marketing and theft from the state. This is why he assures that supplies will continue to grow in stores, though they still haven’t opened wholesale markets – which he believes “would be ideal.”

According to Barreiro, the labor market structure will change over the coming years to an economy with “fewer government employees as they feed into the ranks of the non-state sector (as members of cooperatives, independent tenant farmers and self-employed workers).”

Slow growth

Deputy Minister Barreiro explains that “the main object (of self-employment) is that this becomes an employment alternative,” adding that “since October 2010 this sector has grown by 240,000 workers, bringing the total to 390,000.”

According to Barreiro, the growth in the number of autonomous workers is due mainly to “new permits being issued and the hiring of employees; currently there are 62,747 such employees,” a figure that indicates the success of some “self-employed workers.”

Among the independent workers, “Sixty-nine percent had no employment relationship at the time of applying for a license,” with that figure including the unemployed, pensioners and self-employed workers who exercised their trades illegally when those activities were prohibited.

The deputy minister said that though they lack reliable statistics, the fact is that only 31 percent of the self-employed come from government businesses or institutions. This situation is slowing the rate of layoffs, which needs to eventually lay off one million workers.

Barreiro asks for caution when people look at “the number of reduced personnel (layoffs), because in the ministry we believe that it is a sustained, attentive and organized process. Sometimes downsizing is associated only with the availability of workers (the number of laid off/unemployed workers) but this can also happen through increasing production without increasing personnel.”

More reforms

Barreiro agrees that the absolute number of self-employed workers “has not stopped growing, but the rate of growth is less” than in the beginning. He added that because of this, “self-employment will continue to become more flexible, within the country’s legal, zoning and health standards.”

“Now we’re working on designing structures for urban cooperatives, a form of organization that is different from that of the one for self-employed individuals (…) it will have much more flexibility (…) adopting a similar approach to that of the beauty parlors and barbershops that were transferred over to workers management.”

“There are many services that are currently provided by the state but that could be much more profitable if they were run by cooperatives, they would have much more room for success. We see a place for them in the economy,” explained Barreiro. But then he cautioned that this could not happen right away because “first you have to experiment so that when you advance you’re doing things right.”

He assured us that soon new models of independent work would also be initiated, ones that were previously prohibited. Among those authorized will be “sheet metal workers, iron workers, floor polishers, vendors of aluminum articles, flame-cutters, founders and marble masons.”

Scarcity and crime

The issue of the materials and supplies is the most serious one for self-employment. Authorization was given for independent carpenters, but wood isn’t sold to them. Sheet metal workers work without permission in front of everyone, despite it being known that they use oxygen and acetylene stolen from the government.

Barreiro maintains that “we must end this situation of illegal operations by creating legal mechanisms for purchasing products – for example, the types of gas used by sheet metal workers. Still, he insists that there will be no wholesale markets, though he recognizes that this would be ideal.

He claims that, “We’re clear that the solution is to increase supply,” adding that “now there are materials and inputs in stores; though these are not everything that people need, the supply is increasing. This will continue until the conditions exist for the transition to wholesale markets.”

The other major obstacle that’s confronted is the lack of start-up capital, since banks hardly ever make loans to stimulate business development. According to Barreiro, the main problem is that they still haven’t found ways to ensure that people will pay back their loans.

(*) An authorized translation by Havana Times from the Spanish original published by Cartas Desde Cuba

Bicitaxis

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Cuba: When Bureaucrats Attack

Posted on July 31, 2012 by Arch Ritter

Cuba: When bureaucrats attack

The abrupt closing of a popular Havana business tests Raul Castro reforms.

Ulises Aquino

Original here:  Cuba: When Bureaucrats Attack

Nick Miroff, July 31, 2012 08:44

HAVANA, Cuba— In the new Cuba, the one President Raul Castro and his team of reformers say they’re building, the hard-working entrepreneur is a patriotic figure, a job-creator who’s helping to lift up the island’s feeble economy.

That’s the Cuba where Ulises Aquino thought it would be a good idea to start a business.

With funds earned abroad as an award-winning opera singer, Aquino opened a restaurant and cabaret last year where the company he founded, Opera de la Calle (Opera of the Street) could perform.

He called it “El Cabildo” (roughly, the “meeting place”), transforming a trash-strewn lot into a lively entertainment venue, with an open-air stage, restaurant and bar. Aquino offered free children’s theater and other community activities on weekend mornings, and kept his prices low, charging $2 admission to Opera of the Street shows that feature as many as 80 singing-and-dancing performers.

Aquino was a good socialist businessman too, sharing profits with his 130 employees and paying wages that were three or four times the $20 average monthly Cuban government salary.

More from GlobalPost: Cuba mute in the time of cholera

El Cabildo was so innovative that Aquino and his new model of socialist enterprise were featured in a July 12 Reuters article titled “In Cuba, an opera singer builds an empire.”

And that’s when the bureaucrats attacked.

“It may have been the last straw,” said Aquino, of the article. “But they had their eye on me for a while.”

The following Saturday night, on July 21, a team of city government inspectors arrived at El Cabildo and interrupted the show, “like a team of commandos,” said Aquino, a barrel-chested bulldog of a man, who trembled with anger as he re-told the story.

 

The inspectors ordered Aquino off the stage as the audience looked on in shock. Then they shut down the kitchen and froze the cash register for a four-hour inspection.

By the following Monday El Cabildo was closed and Aquino had an order from local Havana officials stripping him of his business license for two years.

The inspectors had determined El Cabildo to be in possession of “more chairs than the permitted number,” and “products whose origin could not be determined” – ie lacking receipts. Two prep cooks who Aquino says were there on a trial basis were found to be “illegal workers.”

Worst of all, Aquino was accused of “enrichment” because he was charging a $2 cover “for personal benefit,” something he was not specifically authorized to do—even though entertainment venues all over Havana routinely charge $5 to $10 at the door.

There was no fine, no appeals process, no legal recourse. It didn’t seem to matter that Aquino had more than $100,000 of his savings invested in the business, or that 130 families would lose their income.

This was the old way in Cuba, where bureaucrats rule.

More from GlobalPost: Cuba’s gay rights revolution

Aquino, for one, doesn’t blame Raul Castro. “This goes completely against everything that the government has been telling us,” he said.

“The people who are behind this are the mid-level bureaucrats who know the status quo is endangered by all these new opportunities that offer a change from all the old taboos and prohibitions,” said Aquino.

On Monday, officials from Cuba’s Ministry of Culture issued a statement offering their support for Aquino’s Opera company and its ability to continuing performing at El Cabildo. But they said nothing about his dispute with city authorities and the fate of the businesses that make Opera of the Street possible.

“This place is dead right now,” said Ruben Rodriguez, the opera company’s choreographer, covering up the sound board and lighting controls opposite an empty stage. “Everything’s paralyzed.”

The fate of El Cabildo will be closely watched in Cuba, where Raul Castro’s economic reform process has lost momentum in recent months and Cubans’ initial enthusiasm for starting small businesses has faded.

Officials announced a new pilot program last week that will convert state-run companies into employee-run cooperatives, but the experiment will be limited to just 222 firms.

Meanwhile, a vast state apparatus of government officials who produce nothing of value remain ready to prey upon those who do.

Castro and other Cuban officials have repeatedly said that recalcitrant bureaucrats will not be allowed to stand in the way of economic change. If they intervene to help re-open El Cabildo, they will send a clear signal that Cuba’s new small businesses deserve encouragement, not strangulation.

But if El Cabildo stays closed, it can send a different message about Cuba’s incipient capitalism in Cuba: that new entrepreneurs here should not be too ambitious with their plans or too proud of their success. And any business, no matter how big, can be shut down on a whim, if a local official orders it so.

In that case, Aquino said, “the loser here won’t be me. It’ll be our country.”

Opera de la Calle

See also Havana Times July 27, 2012,  Cuba Closes ‘Street Opera’ Project

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Omar Everleny Pérez and Pavel Vidal, “Relanzamiento del cuentapropismo en medio del ajuste estructural”

Posted on July 18, 2012 by Arch Ritter

Below is a Power Point Presentation prepared for the “Seminar on Prospects for Cuba’s Economy” at the Bildner Center, City University of New York, on May 21, 2012 by Pavel Vidal Alejandro and Omar Everleny Pérez Villanueva. Unfortunately Omar was unable to make the CUNY session himself due to visa and flight delays and complications.

The full presentation can be found here: Pavel y Omar Relanzamiento del Cuentapropismo en medio del ajuste estructural

Pavel Vidal Alejandro and Omar Everleny Pérez

 

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