Tag Archives: Self-Employment

Rapid Expansion of Private Restaurants

Posted on June 29, 2012 by Arch Ritter

From Trabajadores, June 27, 2012

Iliana Hautrive / 27-06-2012

Courtesy of Ted Henken, author of El Yuma.

Original here: Mantienen estabilidad los elaboradores-vendedores de alimentos y bebidas que prestan servicio gastronómico por cuenta propia en La Habana.

Paladar “Dona Eutimia” Callejon del Chorro Plaza de la Catedral, opened February 2010

Hal Klepac at another fine paladar, 23 y Calle G (Avenida de los Presidentes)

De excelentes restaurantes se califican los conocidos paladares que hoy funcionan en La Habana, la capital de Cuba, con una cifra de 376 al cierre de mayo último.

Isabel Hamze Ruíz, directora provincial de Trabajo y Seguridad Social en el territorio, confirmó que esta actividad de trabajo no estatal mantiene una línea ascendente, desde octubre de 2010, cuando en el país se amplió y flexibilizó el quehacer por cuenta propia, y en La Habana prestaban servicio entonces unos 74 de estos centros.

Dijo que esos lugares no son mayoritarios dentro de la rama de elaboradores-vendedores de alimentos, pues los que ejercen al detalle en sus domicilios o de forma ambulatoria sobrepasaron los 10 mil 900, y quienes tienen cafeterías (puntos fijos) llegaron a dos mil 567 cuando finalizó el quinto mes del presente año.

Sin embargo, comentó, es una fuerza laboral estable, que a no ser en casos puntuales de solicitud de bajas, como en otras actividades, se consolida tras haber realizado importantes inversiones e, incluso, estudios de mercado, por parte de sus titulares.

En esos restaurantes es apreciable una variedad de ofertas y elevada calidad del servicio, dentro de un espectro que va desde pequeñas fonditas para pocos comensales, hasta aquellos que cuentan con las 50 capacidades autorizadas en cada uno de esos centros gastronómicos.

Para la población y los visitantes extranjeros es una opción que complementa a la red de restaurantes estatales que se mantiene funcionando en La Habana, tal como sucede en el resto del país.

Posted in Blog | Tagged , , | Leave a comment

Presentations from the Bildner Center, (CUNY) “COLLOQUIUM ON THE CUBAN ECONOMY” May 2012,

Posted on June 19, 2012 by Arch Ritter

On May 12, The Bildner Center at City University of New York, under the leadership of Mauricio Font organized a one-day conference analyzing the recent experience of the Cuban economy in its process of transformation.  All of the Power Point presentations from the  “COLLOQUIUM ON THE CUBAN ECONOMY” have been posted on the  Center’s Web Site. The presentations of the Cuban participants, all from the Center for the Study of the Cuban Economy, namely Omar Everleny, Pavel Vidal, Camila Piñeiro, and Armando Nova, are especially valuable and informative as they provide up-to-date and inside analyses of major issue areas. Mauricio, Mario González-Corzo, and the team are certainly to be congratulated for organizing this event

All of the presentations can be be accessed at the Bildner Web Site via the hyperlinks listed below in the form of the program of the conference.

Session #1: Cuban Updates on Actualización

1. Cuentapropismo y ajuste estructural
Omar Everleny, University of Havana

2. Microfinanzas en Cuba
Pavel Vidal, University of Havana

3. Non-state Enterprises in Cuba: Current Situation and Prospects
Camila Piñeiro, University of Havana

4. Impacto de los Lineamientos de la Política Económico y Social en la producción nacional de alimento
Armando Nova, University of Havana

Moderator: Mauricio Font, Bildner Center for Western Hemisphere Studies

Session # 2: Strategic Initiatives: Agriculture

1. Measuring Cuba’s Agricultural Transformations: Preliminary Findings
Mario González-Corzo, Lehman College, CUNY

2. U.S. Food and Agricultural Exports to Cuba – Uncertain Times Ahead
Bill Messina, University of Florida

Moderator: Emily Morris, Economist Intelligence Unit in London

Session # 3: Revamping Socialism: Perspectives and Prospects

1. Actualización in Perspective
Mauricio Font, Bildner Center for Western Hemisphere Studies

2. Cuban Restructuring: Economic Risks
Emily Morris, Economist Intelligence Unit in London

3. Prospects in a Changing Geo-Economic Environment Archibald Ritter, Carleton University, Canada

ROUNDTABLE: Implications and Future Agenda


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

Can Cuba Move Half its Economy to the ‘Non-State’ Sector?

Posted on May 15, 2012 by Arch Ritter

From the Inter-Americanj Dialogue’s “Latin America Adviser” comes some interesting comments on the feasibility of shifting half of Cuba’s economy as measured by GDP to the non-state sector. The analysts are undoubtedly correct in arguing that the conditions are not yet in placed to permit an expansion of the private sector so as to constitute 50% of the economy.

However, as a statement of intention, Hernández comment is interesting. This objective may provide the impetus for intensifying the reform process in order to permit the expansion of the non-state sector to occur.

The original is located here: Inter-American Dialogue, Latin America Adviser, May 11, 2012

 Question:

Cuba wants to move nearly half of its economy to the “non-state” sector within the next five years, Communist Party official Lazo Hernández said last month in a speech in Havana. Currently, government-run businesses account for 95 percent of the island’s GDP, said  Hernández. Is the plan to move almost half of the country’s economy to private businesses realistic? Can the country’s tiny private sector absorb such an effort? Would such a move strengthen Cuba’s economy?

 Answers:

José Azel, senior scholar at the Institute for Cuban and Cuban- American Studies at the University of Miami:

“Lazo Hernández announced that the country is seeking to transform its economy by increasing the economic participation of the ‘non-state’ sector tenfold. To accomplish this, the government is relying on its Draft Guidelines for Economic and Social Policy. This document proposes to chart Cuba’s economic future and states paradoxically that ‘central planning and not the market will be supreme in the actualization of the economic model.’ The centerpiece of this plan revolves around firing as many as a million state employees (20 percent of the workforce) who could then solicit licenses to become self-employed as ‘cuentapropistas‘ in precisely 181 specified trades.

Moreover, the guidelines insist that prices will be set according to the dictates of central planning and the plan will insure that any new ‘non-state’ economic activities (apparently the term ‘private sector’ is not to be spoken) do not lead to the accumulation of wealth. To fully appreciate the economic surrealism of the Cuban ‘reforms,’ it is useful to examine a handful of the 181 trades and activities that are authorized for self-employment and which are foreseen as becoming 50 percent of the country’s economic activity. These include: trimming palm trees, cleaning spark plugs, refilling disposable cigarette lighters, mattress repair, wrapping buttons with fabric, umbrella repair and natural fruit peeling. This bizarre list of permitted private service sector activities will not drive the economic development of the country. Cuba’s GDP today is made up primarily by tourism, the services of doctors abroad, nickel and a handful of agricultural exports. Hernández’s stated goal seems mathematically impossible given a private sector permitted only in subsistence-level activities. An impediment to real reforms is simply that without inspired democratic leadership, the set of long-held Marxist economic assumptions will not be swapped for another set of economic beliefs. These are not reforms to unleash the market’s ‘invisible hand,’ but rather to reaffirm the Castros’ clinched fist.”

Lorenzo Perez, member of the Association for the Study of the Cuban Economy and former deputy director of the Middle East and Central Asia Department at the IMF:

“An expansion of Cuba’s private sector will certainly strengthen the economy. The realism of moving half of the economy to the private sector over a five-year period will depend on the measures taken to attain this goal. While positive steps have been taken in recent months, the measures up to now have been too timid or contradictory to attain this goal. A significant expansion of the private sector would require the opening of most sectors of the economy to private initiatives, respect for private property and the rule of law, freedom for markets to operate and the establishment of a sustainable macroeconomic framework. The activities opened to the private sector are too few (some 200 activities) and continue to limit most private professional activities, thereby negating possible benefits from the country’s well-educated labor force. Insufficient institutional arrangements have been adopted to establish clear property rights and promote the creation of private companies. For example, land distributed to farmers has only been leased, while the creation of companies with unlimited capacity to hire labor is not envisaged. Markets are not operating freely; a substantial amount of food production has to be sold to the state at fixed prices, the private sector cannot carry out most foreign trade activities and a heavy tax burden discourages private investment and hiring. A sustainable macroeconomic framework does not exist with public finances and the balance of payments depends on politically motivated financial relations with Venezuela. No effective measures have been taken to restructure the external debt with most industrialized countries, including negotiations with the United States to settle political differences. As a result, Cuba continues to be isolated from the international economy and organizations.”

Carmelo Mesa-Lago, distinguished professor emeritus of economics and Latin American studies at the University of Pittsburgh:

“The plan to generate half of GDP from the non-state sector requires that 1.8 million workers are transferred from the state sector by 2014, tantamount to 35 percent of the labor force. In 2006-2010, the non-state sector shrank. Under Raúl’s reforms, the government dismissed only 140,000 unneeded state workers in 2011 (14 percent of the target). In that year, there were 357,000 self-employed people (7 percent of the labor force) out of which 209,600 were new and only 17 percent had been unemployed. In addition, from 2009 to 2011, 147,000 agricultural producers were granted usufruct contracts in unused state land (2.9 percent of the labor force), but much less in 2011 alone. Finally 1,500 cooperatives in production and services were created in 2011; the number of members has not been released but assuming 4 members per coop there would be 6,000 (0.1 percent). In summary, perhaps 300,000 jobs in the non-state sector were created in 2011 (5.8 percent of the labor force), which means that 1.5 million non-state jobs must be created in the next three years to reach the 1.8 million target, at an annual average of 500,000. That is impossible at last year’s growth rate. Thus, the structural reforms must be accelerated and deepened, for example, through significant tax cuts in the non-state sector, an expansion of self-employment to university graduates and the elimination of bureaucratic impediments. If this were the case and the targets of state worker dismissals and non-state job creation were met, then the economy would probably be strengthened. The state would save a lot on wages and the private sector, which has proven to be more efficient than the state sector, should increase production and productivity. But a lot of ‘ifs’ must materialize.”

Uva de Aragón, associate director of the Cuban Research Institute at Florida International University:

“It isn’t an easy goal, but it could be attainable if there is: 1) a change of mentality  and acceptance that actors in the nonstate economic sector have a right to profits, and that the creation of a middle class would be healthy for the country; 2) a transparent legal framework; 3) a tax code based on profits, with a moratorium of at least two years for new businesses; 4) expansion of the areas in which the non-estate sector can grow; 5) reduction and eventual elimination of bureaucratic red tape; 6) access to tools and raw materials, in a timely manner and at reduced costs; 7) sustainable markets, which will require among other things higher salaries and pensions for remaining state employees and retirees,  respectively; 8) significant advance in technology; 9) training of Cubans in businesses practices; 10) restructuring of monetary policies (the disparity between salaries in Cuban pesos and cost of products in convertible pesos cannot be maintained) and 11) capital. Where will the capital come from? Can a climate of stability be created to entice foreign investors? Will they allow Cubans in the diaspora to invest, even if only as partners with their relatives and friends? As changes take place, can the state continue to provide a safety net—education, healthcare, social services— for most Cubans? The changes needed are so deep they cannot be done too quickly; but a slow pace is as dangerous. Will Cuba find the needed steady rhythm to transform itself? I personally hope it does.”

José Azel, Uva de Aragon, Carmelo Mesa-Lago and Lorenzo Peréz

Posted in Blog | Tagged , | 2 Comments

The Economist, Special Report on Cuba, March 24, 2012

Posted on March 28, 2012 by Arch Ritter

 

The Castros, Cuba and America; On the road towards capitalism

Change is coming to Cuba at last. The United States could do far more to encourage it.

The Economist has produced one of its excellent surveys, this time focusing on Cuba.

Below are a set of hyperlinks to the various chapters of the Cuba Report. The chapter on the economy is presented following the Table of Contents.

Hyperlinked Table of Contents

  Revolution in retreat; Revolution in retreat

Under Raúl Castro, Cuba has begun the journey towards capitalism. But it will take a decade and a big political battle to complete, writes Michael Reid

  Inequality; The deal’s off

Inequalities are growing as the paternalistic state is becoming ever less affordable

Population; Hasta la vista, baby

The population is shrinking, ageing—and emigrating

The economy: Edging towards capitalism

Why reforms are slow and difficult

Politics; Grandmother’s footsteps

With no sign of a Cuban spring, change will have to come from within the party

Cuban-Americans; The Miami mirror

Cubans on the other side of the water are slowly changing too

After the Castros; The biological factor

Who and what will follow Raúl?

The Economy: Edging towards capitalism

Why reforms are slow and difficult

GISELA NICOLAS AND two of her friends wanted to set up an events-catering company, but that is not one of the 181 activities on the approved list for those who work por cuenta propia (“on their own account”), so in May 2011 they opened a restaurant called La Galeria. With 50 covers, it is a fairly ambitious business by Havana standards. They have rented a large house in Vedado and hired a top chef and 13 other staff who are paid two to three times the average wage, plus tips. The customers are mainly foreign businesspeople and diplomats, Cuban artists and musicians and visiting Cuban-Americans.

“This opportunity means a lot to us,” says Ms Nicolas, who used to work for a Mexican marketing company. “But they haven’t created the conditions for a profitable business.” There are no wholesalers in Cuba, so all supplies come from state-owned supermarkets or from trips abroad. Reservations are taken on Ms Nicolas’s mobile phone. Advertising is banned, though classified ads in the phone book will soon be allowed.

Across Cuba small businesses are proliferating. Most are on a more modest scale than La Galeria. Fernando and Orlandis Suri, who are smallholders at El Cacahual, a hamlet south of Havana, can now legally sell their fat pineapples and papaya from a roadside stall, along with other produce. Orlandis plans to rent space on Havana’s seafront to sell fruit cocktails and juice. In Santa Clara, Mr Pérez’s wife, Yolanda, sells ice-cream from their home. Having paid 200 pesos for a licence and 87 pesos in social-security contributions, she earns enough “to buy salad”. The streets around Havana’s Parque Central heave with vendors hawking snacks and tourist trinkets. Many of them are teachers, accountants and doctors who have left their jobs for a more lucrative, if precarious, life in the private sector.

No reason to work

This cuentapropismo is only the most visible part of Raúl Castro’s reform plan. “The fundamental issue in Cuba is production,” says Omar Everleny, a reformist economist. “Prices are high and wages are low because we don’t produce enough.”

Cuban statistics are incomplete, inconsistent and often questionable. But in a lifetime’s detective work, Carmelo Mesa Lago at the University of Pittsburgh has calculated that output per head of 15 out of 22 main agricultural and industrial products was dramatically lower in 2007 than it had been in 1958. The biggest growth has come in oil and gas and in nickel mining, largely thanks to investment since the 1990s by Sherritt, a Canadian firm. But output per head of sugar, an iconic Cuban product, has dropped to an eighth of its level in 1958 and 1989. Capital investment has collapsed. Raúl Castro has repeatedly lamented that Cuba imported around 80% of the food it consumed between 2007 and 2009, at a cost of over $1.7 billion a year.

The American embargo is an irritant, but the economy’s central failing is that Fidel’s paternalist state did away with any incentive to work, or any sanction for not doing so. So most Cubans do not work very hard at their official jobs. People stand around chatting or conduct long telephone conversations with their mothers. They also routinely pilfer supplies from their workplace: that is what keeps the informal economy going.

The global financial crisis in 2007-08 also took its toll. Tourists stayed away, the oil price plunged, and with it Venezuelan aid. Hurricane damage meant more food imports, just when world food prices were rising and those of nickel, now Cuba’s main export, were plunging. All this coincided with the political infighting in which Mr Lage was ousted, during which “all financial and budgetary discipline was blown away”, according to a foreign businessman. Having repeatedly defaulted on its foreign debt, Cuba has little access to credit. Instead of devaluing the CUC, which would have pushed up inflation, in January 2009 the government seized about $1 billion in hard-currency balances held by state-owned enterprises (SOEs) and foreign joint ventures. It did not finish paying them back until December 2011.

The guidelines approved by the party congress contain measures to raise production and exports, cut import demand and make the state financially sustainable. This involves, first, turning over idle state land to private farmers; second, making the state more productive by transferring surplus workers to the private sector or to co-ops; and third, lifting some of the many prohibitions that restrict Cuban lives, and granting much more autonomy to the 3,700 SOEs.

The grip of the state on Cuban farming has been disastrous. State farms of various kinds hold 75% of Cuba’s 6.7m hectares of agricultural land. In 2007 some 45% of this was lying idle, much of it overrun by marabú, a tenacious weed. Cuba is the only country in Latin America where killing a cow is a crime (and eating beef a rare luxury). That has not stopped the cattle herd declining from 7m in 1967 to 4m in 2011.

In 2008 Raúl allowed private farmers and co-ops to lease idle state land for ten years. By December last year 1.4m hectares had been handed out. The government has now agreed to extend the lease-period to up to 25 years, allow farm buildings to be put up and pay for any improvements if the leases are not renewed.

Credit and technical assistance also remain scarce, says Armando Nova of CEEC. Farmers suffer in the grip of Acopio, the state marketing organisation. It is the monopoly supplier of inputs such as seeds, fertiliser and equipment and was the sole purchaser of the farms’ output, but its monopoly is being dented. Farmers can now sell surplus production of all but 17 basic crops themselves. Under a pilot programme in Artemisa and Mayabeque provinces, near Havana, new co-ops will take over many of Acopio’s functions.

The reformers want to see Acopio go. More surprisingly, so does Joaquín Infante Ugarte at the National Association of Economists and Accountants (ANEC): “It’s always been a disaster. We should put a bomb under it.” But in around 100 of Cuba’s 168 municipalities the economy is based on farming, so Acopio is a big source of power and perks for party hacks, and its future is the subject of an intense political battle. That makes farmers nervous. A year ago the 30 or so farmers in the Antonio Maceo co-op in Mayabeque leased extra land, got a loan and planted bananas, citrus and beans. The administrator says output is up, but “it will take time to see a real difference.” And with that he clammed up.

Official data suggest that output of many crops fell last year; the price of food rose by 20%. That may be partly because farmers are bypassing the official channels. Granma, the official—and only—daily newspaper, reported in January that a spontaneous, self-organised and regulated wholesale market in farm products has sprung up in Havana. That looks like the future.

Letting go is hard to do

Reducing the state’s share of the economy has been even more contested. Raúl originally said the government would lay off 500,000 workers by March 2011 and a total of 1.1m by 2014. That timetable has slipped by several years because the government has been reluctant to allow sufficiently attractive alternatives for workers to give up the security (and the pilfering opportunities) of a state job. But including voluntary lay-offs and plans to turn many state service jobs into co-ops (as has already happened with small barber’s shops, beauty parlours and a few taxi drivers), some 35-40% of the workforce of 4.1m should end up in the private sector by 2015, reckons Mr Everleny.

Raúl sees corruption as politically incendiary at a time of rising inequality

By October 2011, he says, some 338,000 people had requested a business licence, 60% of whom were not leaving state jobs, suggesting that they were simply legalising a previous informal activity. As happens to small businesses the world over, many fail in the first year. Few of the cuentapropistas have Ms Nicolas’s business experience. Many clearly find it hard to distinguish revenue from profit. ANEC is organising training courses. But the government has stalled an attempt by the Catholic church to set up an embryonic business school.

If cuentapropismo is not to be a recipe for poverty, the government will have to ease the rules. Mr Everleny wants to see private professional-service firms being established: architects, engineers, even doctors. Already the taxes levied on the new businesses have been cut, but they are still designed to produce “bonsai companies”, in the words of Oscar Espinosa Chepe, a dissident economist.

Lack of credit is another obstacle. Start-up capital for new businesses comes mainly from remittances. In a pilot scheme the government approved $3.6m in credits in January, nearly all for house improvements. As for deregulation, Raúl has taken some simple and popular steps, lifting bans on Cubans using tourist hotels and owning mobile phones and computers, and last year allowing them to buy and sell houses and cars.

But reforming SOEs is far more complicated. They have been told to introduce performance-related pay. The boldest step was last year’s abolition of the sugar ministry. In principle, SOEs that lose money will be merged or turned over to their workers as co-ops. But a planned bankruptcy law is still pending. So is the elimination of subsidies and the introduction of market pricing. Mr Ugarte of ANEC thinks much of this will happen this year, along with a new law to introduce corporate income tax.

The pace of change has picked up since the party congress set up a commission with 90 staff under Marino Murillo, a Politburo member and former economy minister, to push through the reforms, says Jorge Mario Sánchez at CEEC. “By 2015 there won’t be the socialist economy of the 1990s, nor the same society.” But there are several gaps.

For one, the government seems undecided what to do about foreign investment, a key element in the rapid growth in Vietnam and China. It has cancelled some of the joint ventures it had signed (often in haste) during the Special Period, and such new agreements as it is entering are almost exclusively with companies from Venezuela, China and Brazil. Odebrecht, a Brazilian conglomerate, has reached an agreement under which it will run a large sugar mill in Cienfuegos for ten years. Many foreign companies are keen to invest in Cuba but are put off by the government’s insistence on keeping a majority stake and its history of arbitrary policy change.

Officials worry that foreign investment brings corruption. Raúl has launched an anti-corruption drive with the creation of a powerful new auditor-general’s office. Several hundred Cuban officials, some very senior, have been jailed, as have three foreigners. Raúl rightly sees corruption as politically incendiary at a time of rising inequality. But he is tackling the symptoms rather than the cause. “People who were making $20 a month were negotiating contracts worth $10m,” says a foreign diplomat.

The guidelines involve only microeconomic reforms. Raúl’s macroeconomic recipe has so far been limited to austerity: he has managed to trim the fiscal and current-account deficits. The trickiest reform of all will be unifying the two currencies, by devaluing the CUC and revaluing the peso. It would help if Cuba were a member of the IMF and the World Bank and had access to international credit, but so far the government has shown no interest in joining. Mr Vidal of CEEC points out that for devaluation to provide a stimulus, rather than just generating inflation, the economy would have to be far more flexible. That will require a political battle.

 

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

Small Businesses Face Challenges in Cuba

Posted on March 1, 2012 by Arch Ritter

By Frank Barnako; Market Watch (Wall Street Journal); Feb. 28, 2012

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

HAVANA, Cuba — Cuba’s latest big idea is small business.

In the last year, the Cuban government has expanded the number of areas in which it allows entrepreneurs to launch small retail businesses. More than 350,000 Cubans are now licensed to have their own businesses, according to media reports. The streets are lined with Cubans providing locksmith services; fixing watches; selling pizza, hardware or clothing; and offering other services and commodities. Read a story about daily life in Cuba.

Felix is one of them. Opposite Havana’s Capitolio building, which looks remarkably like the U.S. Capitol, he operates his shoeshine and repair business with an old metal chair for his customers to sit on and a wooden crate as his own workbench. Sometimes, he shines shoes for tourists. Most often, he’s repairing the scuffed and scarred footwear of Cubans. Felix gets about 50 cents for a pair of high boots. White shoes cost $1.

Carlos, another small businessman, is a barbero . His barber’s chair is on the sidewalk in front of his mother’s apartment. He cuts hair with an electric clipper and comb for 75 cents.

Neither Felix nor Carlos is getting rich, not even slowly. It costs money to be in business. The government, which has owned all property in the country since Fidel Castro took power in 1959, collects rent for workspace. Business owners also pay monthly income and social security taxes.

Costs and risks

For the thousands of “cuentapropiatas,” the self-employed, being in business for themselves is a huge change from being a ward of the welfare state that is the Cuban economy. Most Cubans work for the government, in jobs ranging from the menial to the clerical and semiprofessional. Housing, medical care, food rations and education are provided free by the government. The average Cuban’s monthly income is about $20. Doctors are the highest-paid, earning perhaps $350 a month.

Entrepreneurs have to weigh their chances of doing better than a government paycheck. There is an incentive to tap into the vibrant tourist economy, which brought 2.5 million people to the island last year. Tourists spend “Cuban convertible pesos,” which can be used in government-owned retail stores that actually have inventory for sale. They also give tips, making jobs as taxi drivers and hotel waiters among the best on the island. But the lure of “provided free by the state” is anathema to ambition. See photos of daily life in Cuba.

The costs and risks of being his own boss are not too high for Edwaldo, who, with a friend, has gone into the hardware business. It has been slow the first few months, he says. “But I think it will get better.” His store is on the front stoop of his apartment building. The hallway is the store’s space. Unlike many other hardware stores, his display is not on a windowsill of an apartment encased by security bars.

His venture is more iffy than many other entrepreneurs’, whether they’re selling sandwiches, pizzas or white plastic bags outside farmers’ markets. That’s because the hardware guys need stock to sell. They trade in items like Chinese-made TV remote controls, faucets, saw blades and paint brushes that, in the states, they could buy from manufacturers or distributors. Except there is no private wholesale or distribution system in Cuba. So they get items from friends or family who may bring them from the U.S.

They also trade with other merchants and even recycle what they may find in the debris of crumbling buildings or sites where buildings are being renovated. There is no Home Depot. Building materials must be shipped in, most likely from Spain or Mexico, according to the island’s official historian, who oversees rehabilitations.

Running a business is also difficult because of a lack of marketing tools. If a merchant wants a sign over his store space, the government will charge a monthly fee. While there are two Cuban television stations, they don’t carry advertising. There are no billboards, and only recently has the telephone company, Etecsa, accepted Yellow Pages–type advertising for a new directory, according to Granma, the Communist Party’s newspaper. The cost is $10, the paper said. Each listing will include a company’s name, address and phone number.

President Raul Castro, five years his brother’s junior, has set a goal of moving 1 million state workers off the government payroll. That would reduce the burden for the state while at the same time increasing income from their rents and taxes. Think of it as a strategy to reduce costs and increase income, at the expense of contradicting 53 years of history on this Caribbean island.

Archibald Ritter, an economist at the Norman Paterson School of International Affairs at Carleton University in Ottawa, says the government’s liberalized stance toward self-employment “is steadily, inexorably and permanently reversing Fidel’s economic heritage — though not his political institutions.” A major part of Fidel Castro’s life “is being canceled,” he says.

The Associated Press has watched a dozen of these start-ups in Cuba over the last year. A third have already failed. One wonders what will be the social cost of Raul Castro’s new socialism if the seemingly genetic optimism of these Cubans is blunted by the realities of a society with little consumer disposable income. Could Castro be sowing the seeds of a troubled harvest?

Posted in Blog | Tagged , , | Leave a comment

John P. Rathbone “Lessons for Cuban business”: A Note on Problems of Micro-Ensterprises

Posted on January 30, 2012 by Arch Ritter

“Lessons for Cuban Business” from “Beyondbrics” (Financial Times); January 30, 2012 8:19 am

John Paul Rathbone
President Raúl Castro wants the recent liberalisation of small businesses to bolster Cuba’s sagging economy and absorb the 1m state workers he says will eventually be laid off.

But Cuba’s budding micro-entrepreneurs – over 350,000 had registered as of November 2011 – lack almost everything that start-ups need, from premises and relevant skills to capital. Will they ever really get off the ground?

A bustling restaurant in Havana’s colonial centre – which opened in January 2011, is appropriately called “La Moneda Cubana”, the Cuban coin, and is run by Miguel Ángel, a 37-year old entrepreneur – suggests some answers.

First, the premises. The three-storey restaurant, which once belonged to Ángel’s grandfather, was nationalised in the 1960s. But the family has lived continuously at the premises since then – indeed, ever since 1924. As a result, Ángel was able to set up operations immediately.

And what a location it enjoys: La Moneda Cubana lies just a few steps from the cathedral, has a sweeping view of the Havana bay from its roof terrace, and enjoys a regular stream of tourists. Few are so fortunate. Indeed, the process of leasing state properties remains incipient.

Second, necessary skills. Ángel worked for several years in the state tourist sector, first at the Floridita, where Ernest Hemmingway once drank daiquiris; then in the kitchens of the nearby Hotel Sevilla. “I learnt there everything I needed to run my kitchen,” Ángel told beyondbrics.

However, similar backward linkages are rarer elsewhere. “A good restaurant also needs a manager and an accountant,” he adds. Such skills are hard to come by in Cuba’s Soviet-style economy – hence the business skills training program the Catholic church set up last year.

Third, funds. The usual supposition is that Cubans turn to their émigré relatives for start-up capital. This is entirely legal under Castro’s new rules – indeed, it is tacitly encouraged.

Be that as it may, the cagey habits of under-the-table informality that Cubans developed over decades socialism remain deeply engrained.

Ángel, for example, insists he restored the three-story building “all with my own resources”.

Be that as it may, Ángel says his operation is now self-financing. La Moneda Cubana’s intense footfall suggests this may indeed be so. That is just as well, as the notion of Cuba’s creaking banking system offering credit is entirely novel – although there is government talk it will do so.

Fourth, inputs. Cubans can now buy construction materials directly from the state. As for food, Ángel still buys from the state rather than private farmers. “They can’t ensure a steady and reliable supply,” he says.

That is changing fast, however. According to state media, 71 contracts have been executed between private farmers and state-run hotels – a huge change that will strip out the inefficient state-distribution system.

Cuba’s small business sector is still fragile and Ángel’s success will not be replicated everywhere. Business generally remains very small scale. Most entrepreneurs sell out of their homes, or from makeshift street stalls. Havana is far from becoming a neon-wrapped landscape.

But the popularity of the reforms and Castro’s mantra that they will be implemented “slowly, but without pause” also means they are irreversible. Ahead of the Communist Party’s conference over the weekend, even state newspaper Granma talked of the need “to leave behind prejudices against the non-state sector” and to overcome the “psychological barrier” of “obsolete dogmas”.

One of these is work habits. Ángel, for one, has already turned on its head the old socialist rubric of “everyone pretends to work and the state pretends to pay.” Compared to state wages worth around $20 a month but paid in Cuban pesos, his staff get a percentage of profits in hard currency. “They like that, very much,” he says.

As for his own workday: “I get here early in the morning and usually leave around 3am.” Does he mind? “One has to do what one has to or wants to do – and I do. This is as much an emotional adventure as a financial one,” he says, with a smile.

John Paul Rzthbone

Posted in Blog | Tagged , , | Leave a comment

Liberating Cuba’s Long-Suppressed Resource: Entrepreneurship

Posted on October 20, 2011 by Arch Ritter

By Arch Ritter

In early 1996, I visited the home of a high Cuban official with whom I had become acquainted.  While there, a “colero” or  “queuer” arrived after having waited in the queue to purchase the family’s rations of cigars and cigarettes among other things. (A source of income for many people in Cuba was to stand in line and purchase short-supply rationed products for other families.)  Although no members of the family smoked, they happily collected their rationed tobacco products for resale on the black market in order to acquire other necessities. My friend the official was as “revolutionary” as anyone that I have known in Cuba, going so far in the early years of the Revolution as to return the “per diems” that he saved from foreign travel to the government rather than buying such things as shoes for his children. However, by 1996, buying and selling on the black market was natural and comprehensible for him and most other people.

I. From “School for Socialism” to “Nation of Entrepreneurs”

During the thirty years or so in which the exercise of entrepreneurship in a market-oriented setting was largely prohibited, Cuba in fact created a nation of entrepreneurs.  Although the intention was to convert Cuba into a “school for socialism,” the reality is that Cuba has also been a school for market-oriented entrepreneurship.  This is one of the more significant paradoxes of the Cuban Revolution.

The nature of Cuba’s planned economy itself inadvertently promoted widespread entrepreneurial values, attitudes, behavior, and savoir-faire as citizens of necessity have had to buy and sell, hustle and “network” in order to improvise solutions to their personal economic problems.  The most important phenomenon in this process was the rationing system, implemented in 1961. This system was designed to provide everyone with a basic supply of foodstuffs, clothing, and household consumables, in order to achieve a minimum level of equality of consumption and real income.  It provided every individual (or household for some products) with fixed monthly quotas of foodstuffs, cigarettes, or household consumables and with annual quotas for clothing and footwear.  Everyone received the same allocations of products at controlled and generally low prices (in relation to average monthly incomes).  (Children and those with special health problems such as diabetics were treated differently and provided with special food rations.)  Because everyone received essentially the same rations, many people would receive some items that they did not want or which were of lower priority than other items.  In the context of generalized shortage and excess demand which existed with varying intensities since 1962, especially after 1989, everyone had an incentive to sell the rationed items they did not want or to trade them for other products they did want.  For example, non-smokers would purchase their cigarettes and cigars through the rationing system and would then give them to other family members or friends, resell them on unofficial markets, or trade them for other products. Thus, the rationing system converted many people into “mini-capitalists.”

The situation of excess demand and generalized shortage, especially after about 1989 when the subsidization from the Soviet Union ceased, also meant that anyone with privileged access to a product at an official price could resell it at a higher free-market price or in the dollar economy.  There was therefore a strong incentive making a profit from exchanging many types of product between the fixed-price official sources and the unofficial or “black market” determined price.  Related to the above phenomenon was “amiguismo” or “sociolismo” or “partner-ism”, that is, the reciprocal exchange of favors.  While such reciprocity probably occurs in all countries and in many different contexts, it took on some important additional forms in Cuba.  Basically, any person with control over resources could exchange access to those resources for some current or future personal material benefit.   Cultivating friends or associates in this way was vital for assuring oneself and one’s family access to the goods and services necessary for basic material well-being.  Complex networks of reciprocal obligations thus became an important part of the functioning of the economy.  Daily life involved continuing endeavors in maintaining the personal relationships necessary to ensure access to necessary goods and services through the unofficial channels or through the official channels unofficially.

In short, citizens in their everyday material lives had to behave in an entrepreneurial manner.  People had to explore and evaluate new economic opportunities, to acquire the consumer goods they and their families needed, to sell some consumer goods (or in some cases outputs of goods and services), to bear uncertainty, face risk and take ultimate responsibility, and to invest in the maintenance of their supply and market networks, all under hard and unforgiving budget constraints.

A second area where entrepreneurial action was necessary was the central planning system itself. In a perfectly functioning planning system, enterprise managers would have little to do besides obeying and implementing orders.  But because the planning system could not and cannot work perfectly especially in the face of continuing disruptions and uncertainty, enterprise managers had to take initiatives in resolving unforeseen problems. Frequently, solutions to such problems were to be found outside the normal channels of the planning system and required improvised responses by the enterprise managers. This often involved enterprise managers obtaining the required inputs through negotiations with other enterprises, with superior officials, or with superiors or inferiors in other sectors or Ministries.  In these negotiation processes, political argumentation, political or Party “amiguismo” or “sociolismo” (i.e. the exchange of favors within the Party for political and material benefit) as well as economic criteria were central, and economic management was therefore highly political. Managers throughout the Cuban economy had to invest large amounts of time and energy in resolving such input-supply problems. Indeed, their performance depended upon their entrepreneurial success in operating “outside the plan.”

While entrepreneurial talents have been developed broadly among the population, their exercise until 1993 was for the most part restricted to the important but low-level everyday tasks of sustenance and survival, often carried out in the underground economy or in “black markets.”  But when the space available for entrepreneurial activity was increased with the liberalization of microenterprise beginning in September 1993, the expansion and diversification of micro-entrepreneurial activity was impressive.

II. Liberating Cuban Entrepreneurship

The advantageous consequences of further policy liberalization towards micro-enterprise have been illustrated dramatically by the arts and crafts market and by the Barrio Chino. The production of arts and crafts, largely for the tourist market, expanded immensely and the quality and diversity of the products has improved greatly after 1993. It is now a major source of foreign exchange for Cuba, though statistics on this do not seem to exist. Similarly, the quasi-private restaurants in the Barrio Chino that enjoyed a cultural exemption from the 12 chair size-limitation emerged some time ago as dynamic, large, diverse and efficient restaurants – perhaps the best in Havana. They are a living example of what many sectors of the Cuban economy could become with further relaxation of restrictions and a reasonable  tax regime were implemented.

The liberalization of licensing and the other policy changes that were introduced in 2010 and 2011 have already born fruit. (The policy reforms are outlined here Raul Castro and Policy towards Self-Employment and here: State Sector Lay-offs then Private Sector Job Creation.) The numbers of micro-enterprises have increased significantly even if the initial objective of 500,000 new jobs in the sector by March 31 2011was not achieved. This is illustrated in the accompanying chart.

Source: Republica de Cuba, Oficina Nacional de Estadisticas (ONE), Anuario Estadistico de Cuba, various issues

While the task of modifying the policy framework for the micro-enterprise sector is incomplete, major improvements have been instituted so far and more are in the process of implementation. In the summary presented in Table 1, it can be seen that advances have been made in a number of areas, notably licensing and “de-stigmatizing”. Progress has been made or promised in other areas. In still other areas, some reforms have been introduced but further action is desirable. And in a few areas there has been no action yet.

It is worth noting again the benefits that a deeper liberalization of policy towards small enterprise would generate. These would include:

  • More productive employment would be created, a vital objective if redundant state workers are to be reabsorbed into the economy.
  • An increase in small enterprise would increase competition, lower prices, improve quality and broaden diversity of the goods and services produced.
  • Incomes would be generated.
  • The average levels of incomes in the small enterprise sector would tend to be driven to the average national level if it were opened up with free entry for anyone wanting to establish a micro-enterprise.
  • Citizens would gain when reduced effort and time was necessary to obtain the goods and services necessary for survival.
  • Improved productivity of small enterprises would permit higher material well-being throughout Cuban society.
  • The massive underground economy would shrink.
  • Tax revenues from the sector would increase as it expanded.
  • Foreign exchange earnings and savings would occur as domestic products replaced imported products and as markets for tourists and for export expanded.
  • Innovation and improvement would be promoted.
  • Urban and rural commercial revival would occur.
  • The general quality of life would be improved.
  • The culture of compliance and respect for public policy rather than regulation avoidance and illegality would in time take effect.

Most important, further liberalization of the small enterprise sector would harness the ingenuity, creativity, industriousness and enthusiasm of a substantial proportion of the Cuban people to more productive economic activities.

Would such an apertura worsen income distribution? In the early stages, as some small enterprises increased in size, this would perhaps occur. But Cuba already has an income tax and an effective administrative system for taxing small enterprise so that this effect could be managed. Opening self-employment and small enterprise to all possible entrants would also increase competition in the sector and push prices and thence incomes towards average levels.

Barrio Chino, November 2008, Photo by Arch Ritter

 

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

Toronto Globeand Mail, “Small acts of free enterprise attest to reform looming large in Cuba”

Posted on October 19, 2011 by Arch Ritter

Small acts of free enterprise attest to reform looming large in Cuba

By SONIA VERMA
Globe and Mail, Toronto, October 18, 2011

Regime can no longer afford to finance socialist ideals upon which it was founded

Original Article Here: Small acts of free enterprise….

Just off the Malecon, Havana’s famous seaside corniche, Omar Gatierrez strikes a deal to sell his ’56 Oldsmobile for the rough equivalent of $14,500. It’s the most money he’s ever made.

At a burger joint not far from there, Alfredo Garcia, an economist, shells out twice as much as he normally would for a strawberry milkshake just because it tastes good. Around the corner, Lazaro Rafael, a mechanic, haggles over the price of repairing an infirm Peugeot on the street near the sea where he lives.

Nerci, Cuenta Propista and Artisan, Habana Vieja, Photo by Arch Ritter, November 2008

These small acts of free enterprise would have been inconceivable in Fidel Castro’s Cuba. Under his younger brother, Raul, however, they add up to dramatic economic reform that is quietly reconfiguring the country into something altogether different. Cuban authorities are careful to depict this restructuring as upgrading the revolution rather than forsaking it, yet underpinning it all is an overriding sense of urgency to change.

Floated by fickle Chinese credit and Venezuelan oil, the regime can no longer afford to finance the socialist ideals upon which it was founded. With Cuba at a crossroads, the future remains unclear. One path appears to lead to nowhere, should the regime prove too brittle to allow private enterprise to truly flourish. The alternative route, others worry, would morph the island into something resembling a Floridian mega-mall.

Both outcomes would be disastrous. Most analysts believe the country’s true destiny lies in becoming a mixed economy where the state loosens its grip over some sectors but maintains leverage over others. The aim, Cuban sources said, is to have 35 per cent of the economy privatized by 2015. Achieving this elusive balance, however, will prove exceedingly difficult. The reforms that have been rolled out so far – such as allowing cars to be sold and licensing small businesses – have been relatively painless, eclipsing more agonizing ones that lie ahead.

For Cubans, many of whom have virtually no memory of life before the revolution, the reforms are confusing and their consequences unknown. The regime has vowed to implement a progressive tax structure to avoid a Russian-like result where vast amounts of wealth is concentrated in the hands of the few. But a schism of class – however minor – would symbolically violate Mr. Castro’s symbolic contract with his people.

Over the next five years, for instance, the regime intends to lay off up to a million public-sector workers, equalling 10 per cent of its work force. Food rations, for which many Cubans rely on for their daily sustenance, are also due to be phased out. Betting on an increase in productivity, the government has promised to boost wages, but economists doubt it will be enough to keep pace with a rising cost of living, as goods are removed from the ration card.

“These larger state-led reforms are going to be wrenching,” said Christopher Sabatini, editor-in-chief of Americas Quarterly. One of the biggest obstacles to real change in Cuba, he argues, is the awkward paradox the regime finds itself in: Downgrading its leverage in order to save itself from ruin.

“There’s an inherent tension in any economic reform that involves the Cuban state reducing its own authority over the economy, which is [Fidel] Castro’s real legacy,” Mr. Sabatini explained.

Another problem is that while Cuban authorities seem to have a clear idea of the main focus of the restructuring – reducing the state payroll, nourishing the private sector, boosting food production – the government is vague on its timeline for implementing the changes and even more so on how it plans to deal with any fallout. The haphazard transition means that whenever one of the 311 new decrees issued by the Communist Party at its April Congress becomes law, few people on the street in Havana seem to notice or understand why they should care.

Josefina Vidal, director of the North America Department for Cuba’s Ministry of Foreign Affairs, said the protracted rollout is deliberate: “It’s a slow process because we are very much interested in avoiding any kind of social impact. We don’t want anybody to be abandoned or left behind,” she said in a recent interview with The Globe And Mail. Some measures, she acknowledged, were easier to implement than others.

When it comes to defining Cuba’s end goal, officials are equally open-ended, maintaining the state is not trying to emulate other countries – such as China or Vietnam – but rather aiming to pursue an entirely unique set of reforms. Observers, however, disagree.

“They want this to be a made-in-Cuba type of economic system. But if it is made in Cuba it certainly resembles the Chinese approach, and it’s moving more and more in that direction,” said Arch Ritter, an economist at Carleton University who specializes in Cuba.

As he points out, Cuba’s economy is nowhere near China’s in terms of scale or scope. Also, China’s ruling Communist Party is less ossified than Cuba’s, which is still dominated by octogenarians. The recent death Cuba’s minister of defence, Julio Casas Regueiro, at the age of 75, highlighted the frailty of the state’s older generation of leaders who are still firmly in charge.

Without political renewal, analysts say Cuba’s economic reforms are doomed. “They are trying to let the economic genie out of the bottle while keeping the political genie in. That’s not going to work,” predicted Arturo Lopez-Levy, a former political analyst in the Cuban Interior Ministry and a lecturer at the University of Denver.

Meanwhile it remains unclear how Cuban society, much less the regime, will deal with social changes that will inevitably follow the economic ones. How will the state prevent Cuba’s new generation of entrepreneurs from accumulating the kind of wealth that could give rise to a new upper class? How will it ensure all Cubans have access to capital, not just the ones with relatives in Europe or Miami? How will it provide incentives for productivity and initiative if it plans to heavily tax the rewards of that?

“Don’t be fooled,” Mr. Sabatini says. “They want to preserve the system in many ways … at least the perks of the system.”

As sweeping as Cuba’s current economic reforms are, key enterprises such as mining, oil and sugar production will remain in the hands of the state. Cuba’s health system and its lucrative tourist industry will also remain unchanged, at least for now. The rebranding of the revolution, Mr. Sabatini argues, is still very much a work in progress.

“What was Castroism anyways? It was really about survival. Cuba’s future will boil down to whatever it needs for political and economic survival, rather than any principled commitment to the revolution,” he said.

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

“The Economist” on Taxes in Cuba: Get used to it

Posted on September 15, 2011 by Arch Ritter

The Castros’ subjects get acquainted with that other sure thing

Sep 17th 2011 | HAVANA | from the print edition

Half your monies are belong to us

WHEN Raúl Castro, Cuba’s president, announced last year that the government would cut its payroll by up to 20% and promote self-employment, state media hailed the birth of a “tax culture”. As most Cubans had never paid income tax, the Communist newspaper published a guide to the concept. Government economists predicted a 400% increase in tax revenue from individuals.

The experiment has been bumpy. Last October Cuba published a tax code for workers in its 181 newly authorised occupations, ranging from furniture repairer to professional clown. As in the early 1990s, the last time Cuba tried economic liberalisation and taxation, the rates were punitive: 10% on turnover, 25% for social security and up to 50% on income. Such levies discouraged some people from risking self-employment. By May applications for job licences were tailing off.

Moreover, Mr Castro failed to beef up the National Tax Administration Office (ONAT), which was soon overwhelmed by filings. That has delayed revenue collection, and allowed both intentional and inadvertent tax cheats to go unpunished. “They seem even more confused about this than we are,” says Ernesto, an engineer who obtained a licence to set up a plumbing business in March. He admits that he simply guesses how much he has earned each month and declares a tenth as much.

But Mr Castro seems more flexible than his brother and predecessor Fidel, who blamed the self-employed for sowing inequality and happily taxed private firms out of existence. Eager to find jobs for up to 1m public workers he plans to fire, he has carved out exemptions from the social-security tax and twice increased the scope for deductions. He has also ordered ONAT to retrain its staff and hire new inspectors. “There certainly is an element of making up the rules as they go along,” says one European diplomat based in Havana. “But Raúl seems totally determined to make this work.”

Further reforms are on the way. By the end of 2011, Cubans will be allowed to buy and sell homes and cars. It remains to be seen how long they will accept taxation without representation. “They happily take our taxes,” says Michel, a barber who recently founded a business. “But they still keep their secrets.”

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

Centro de Estudios sobre la Economía Cubana, “Seminario Anual sobre la Economía Cubana” 21-24 de junio de 2011

Posted on June 29, 2011 by Arch Ritter

 The Centro de Estudios sobre la Economia Cubana has just completed and publicized its 2011 Annual Report on the Cuban economy. Here are hyperlinks to the main economics articles. A number of essays focussing on enterprise management have not been included here.

Juan Triana Cordoví, “Cuba 2010-2011, del crecimiento posible al desarrollo necessario“

Jorge Mario Sánchez Egozcue, “La Relación Crecimiento Económico y Sector Externo, una evaluación de la dinámica“

Pavel Vidal Alejandro y Omar Everleny Pérez Villanueva, “Relanzamiento del cuentapropismo en medio del ajuste estructural1”
 
Ileana Díaz Fernández y Ricardo Torres Pérez, “Los encadenamientos productivos, un análisis para Cuba

 

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