Tag Archives: Small Enterprise

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

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

February 24, 2017

Complete Presentation:  FIU CRI 2017 Presentation


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“CUBA 2017: SLOW MOTION ECONOMIC REFORMS PLUS POLITICAL STASIS”

Attached here is a Power Point Presentation on Cuba’s current economic and political situation.  The complete presentation is attached here:  Cuba 2017: Slow Motion Reforms. January 4, 2017

By Arch Ritter

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DONALD TRUMP HAS A CHOICE TO MAKE ON CUBA

CNBC.com

Ted Henken,  November 14, 2016

zzazaOne example of freer markets in Cuba isthe Paladar La Cocina de Lilliam (Lilliam’s Kitchen), a home-based restaurant garden where President Jimmy Carter ate on his first visit to Cuba in 2002. Photo: Ted Henken

While Americans have been reeling over the shocking outcome of our presidential election, Cubans are experiencing perhaps even greater vertigo as a result of the surprise victory of Donald Trump.

As the saying goes, “When the U.S. sneezes, the rest of the world gets a cold.” Or perhaps the old Mexican adage is more appropriate to the situation Cubans find themselves in: “Poor Mexico! So far from God, but so close to the United States!”

Cubans went from a largely acrimonious relationship with the U.S. prior to December 2014, to one of unprecedented “hope and change” during the past 22 months under bilateral efforts to achieve diplomatic normalization between the erstwhile adversaries, to one of great trepidation and uncertainty over the past week given the president-elect’s campaign promise to “cancel Obama’s one-sided Cuban deal.” President Raúl Castro perfectly captured the moment’s ambivalence for Cuba by quickly sending the president-elect a brief note of congratulations while simultaneously ordering a five-day military mobilization.

In my more than half-dozen trips to the island over the past year, I have noted a palpable, ebullient expectation among Cubans for a better, more prosperous future under Obama’s “new rules” of engagement. This was especially pronounced among Cuba’s emergent entrepreneurial class, which includes old school cabbies in their even older school American cars, hip app designers in Cuba’s surprising tech start-up scene, and some of the many restaurateurs behind the island’s surging circle of “paladares” (private, home-based restaurants) which now number more than 1,800.

This hard-won hope was also born of Cuba’s own “new rules” introduced in late 2010 under President Raúl Castro aimed at expanding the island’s long-suppressed private sector. However, I also found that most entrepreneurs were under no illusions that the Cuban government would be fully lifting its own counter-productive “auto-bloqueo” or internal embargo against grass-roots entrepreneurial innovation and inventiveness any time soon.

This sense of rising hope inside Cuba reached its climax in Obama’s brilliant deployment of soft power during his historic state visit to the island in March 2016. Many Cubans identified with this youthful, optimistic, and eloquent African-American family man endowed with both a sense of history and of humor much more than with their own waxworks of old white ideologues.

However, Cuba’s old guard realized that Obama’s charm offensive had begun to fatally undermine their own authority and undercut their long-effective use of the U.S. boogeyman as a scapegoat for their own economic failures and as a justification for their continued political authoritarianism. In response, the Cuban leadership has spent the past eight months constantly reminding Cuban citizens of the continued U.S. existential threat to Cuban sovereignty under the Revolution and simultaneously dashing their hopes for a better, more open and prosperous future by stepping up detentions of peaceful political opponents and independent journalists and slowing economic reforms to a manageable trickle.

The clearest example of the Cuban government’s efforts to lower expectations has come on the economic front. First, April’s Seventh Party Congress included no new resolutions about deepening or expanding much needed market-oriented reforms apart from a vague reference to studying the possibility of granting status as legal businesses to a portion of the half-a-million strong micro-enterprise sector. Nothing has come of this idea in the intervening seven months.

Second, price controls have been reimposed in the private agriculture and transportation sectors, reducing incentives for greater production. Third, this past summer saw the government scale back economic growth estimates for 2016 to under 1 percent and impose severe energy saving and cost-cutting measures across the state sector due to a liquidity crisis and the Venezuelan debacle.

Finally, the issuing of new licenses for Havana’s surging private, home-based restaurant sector were suspended for six weeks in the fall in order to root out legal violations such as providing bar services and live entertainment without permission, obtaining supplies from black-market sources, staying open past the state-imposed 3 a.m. closing time, and tax evasion. Some have even been accused of doubling as sites of prostitution and drug trafficking and shut down.
show chapters

However, the government has so far not delivered on its promise to provide affordable access to wholesale markets for these restaurateurs nor has it allowed them to legally import supplies from abroad or expand beyond the arbitrary limit of 50 place settings. Moreover, the tax system for the private sector provokes “creative bookkeeping” by imposing a rigid 40-percent deduction limit for business often burdened by much higher supply costs due to Cuba’s environment of chronic scarcity. It also imposes a labor tax on any more than five employees disincentivizing legal hiring.

To add insult to this injury, the moribund network of their state-run competitor restaurants do enjoy access to wholesale markets and suffer no seating or size restrictions or employment taxes. Especially frustrating for Cuban entrepreneurs is the fact that this emphasis on law and order comes in the context of shrinking output in the state enterprise sector, a looming emigration crisis with record numbers of new Cuban arrivals in the U.S., and in the midst of a tourism boom that the state hospitality sector has proven unable to absorb.

As Cubans like to say: “¡No es fácil!” (It ain’t easy!)

President-elect Donald Trump could follow the recommendation of some Congressional Republicans by adding his own isolationist wind to the already full sails of the Cuban government’s rigid control that attempts to keep Cuban entrepreneurs in their frustrated and impoverished places. Or he could send Cuba’s business pioneers a message of support and solidarity as they attempt to build a more prosperous future by continuing America’s historic opening to Cuba that aims to empower the island’s mergent capitalists through engagement, investment, and trade.

For someone who campaigned as a anti-politician who would bring a hard-nosed business sense to Washington, Cuba presents Trump with a golden opportunity to place economic pragmatism and the tangible benefits it would bring to citizens of both countries over the out-dated and counterproductive Cold War ideology that undergirds the embargo.

Commentary by Ted A. Henken, an associate professor of Sociology and Latin American Studies at Baruch College, City University of New York and co-author with Arch Ritter of the book “Entrepreneurial Cuba: The Changing Policy Landscape.” He is a past president of the Association for the Study of the Cuban Economy (2012-2014). Read his blog and follow him on Twitter @ElYuma.

 

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VOCES DE CAMBIO EN EL SECTOR NO ESTATAL CUBANO. Cuentapropistas, usufructuarios, socios de cooperativas y compraventa de viviendas.

Mesa-Lago, Carmelo (coord.) Veiga González, Roberto; González Mederos, Lenier; Vera Rojas, Sofía; Pérez-Liñán, Aníbal

zzzzzzzzzzzzzzzzzzzzzzzzzz Capture

Septiembre de 2016

See: VOCES DE CAMBIO

Más de un millón de personas, casi un tercio de la fuerza laboral cubana, está en el “sector no estatal” de la economía: trabajadores autónomos, usufructuarios de la tierra, miembros de nuevas cooperativas, compradores y vendedores de viviendas privadas y otros grupos. Aunque se trata de la reforma estructural más importante de Raúl Castro, que conlleva una reducción gradual del sector estatal, poco concreto se sabe sobre las características (edad, género, raza y educación), condiciones económico-sociales y aspiraciones del emergente sector no estatal.

Basado en 80 entrevistas intensivas hechas en Cuba entre 2014 y 2015, el libro recoge las voces del sector: hablan sobre su nivel de satisfacción con lo que hacen y ganan, sobre empleados contratados y formas de pago, ganancias y su distribución entre inversión y consumo, planes de expansión de los micronegocios, recibo de remesas externas y microcréditos, competencia y publicidad, y pago de impuestos.

La parte crucial es la que detalla las voces sobre los principales problemas que enfrentan los cuentapropistas y sus deseos de mejora o cambio.

Dice un trabajador autónomo: “Debe haber rienda suelta a toda esta fértil imaginación que estamos demostrando los cubanos, que se realice sin trabas, de manera libre, que el gobierno permita que esto fluya, no lo dificulte y controle sólo lo que debe controlar”.

COORDINADORES

Coordinado por Carmelo Mesa-Lago, Catedrático Distinguido de Economía y Estudios Latinoamericanos en la Universidad de Pittsburgh. Es autor o editor de 93 libros y 300 artículos/capítulos en libros sobre economía de la seguridad social en América Latina, la economía cubana y sistemas económicos comparados, traducidos a 7 idiomas y publicados en 34 países. Ha recibido los premios Arthur Whitaker (1982), Hoover Institution (1986) y Alexander Von Humbolt Stiftung (1991, 2002).

El libro cuenta con la colaboración de Roberto Veiga González y Lenier González Mederos, cubanos residentes en la Isla que realizaron las entrevistas; la de Sofía Vera Rojas y Aníbal Pérez-Liñán que llevaron a cabo las tabulaciones y su análisis.

Iberoamericana Editorial Vervuert, S.L.U.

c/ Amor de Dios, 1
E-28014 Madrid
E-Mail: info@iberoamericanalibros.com

R121015

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

Yailenis Mulet Concepción

Third World Quarterly

Volume 37, 2016 – Issue 9

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

Abstract

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

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

Introduction

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

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

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

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

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

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

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

Conclusions

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

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

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

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

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

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

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

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FAR FROM SILICON VALLEY, CUBA CULTIVATES STARTUP SCENE

BY Leani García |

Americas Quarterly, June 15, 2016

Original Article Here: Cuba Cultivates Startup Scene

 Cuba’s startup community is developing despite a lack of funding, equipment or fast internet.

 zz wifi-hotspots zzCubans can access the internet at government-run wireless hotspots.

The barriers to founding a tech startup in Cuba are high. For starters, hardly anyone has access to internet connections faster than dial-up.

But that’s not stopping a generation of young entrepreneurs on the island, where a nascent tech community is challenging the idea that tech innovation has to come from places like Silicon Valley.

Two of those entrepreneurs, Eliecer Cabrera Casas and Pablo Rodríguez Yordy, spoke with AQ at a recent tech startup event in Miami about their experience founding the Yelp-like app Conoce Cuba.

“Cuba is an emerging market where there are a lot of opportunities and talented professionals,” Cabrera said.You can’t invest at the moment, but in a short amount of time conditions can change. We’re preparing the field for the future.”

In addition to the challenges that entrepreneurs face region-wide – from weak infrastructure to innovation-stifling corruption – Cubans like Cabrera face a number of unique obstacles to getting their ideas off the ground.

One of the first hurdles they face is funding. While bank lending on the island is increasing, it’s still not sufficient to meet the needs of the 500,000 registered self-employed Cubans. And having been excluded from Cuba’s recent foreign investment law, tech entrepreneurs don’t have a legal avenue to receive direct funding from foreign companies or investors. Instead, they rely on a combination of state salaries and family connections to support their ideas. An estimated 70 to 80 percent of Cuba’s small businesses are funded with remittances and family money, according to Sergio Lázaro, president of the Cuban software engineering startup Ingenius.

Then there’s web access. Cuba has the lowest internet penetration rate in the region, at just 3.4 percent for authorized households. For businesses like Ingenius, which specializes in cloud computing, the key is to make the most of limited time on the internet. Programmers connect just twice a day, once in the morning to download what they’re working on and again in the evening to push finished products to their clients.

The spotty internet can also create opportunities. Conoce Cuba, which functions as an offline app and website, was built as an upgrade to traditional phone books, one of the few ways to discover business and restaurants on the island. Because Cuba has limited internet and nearly non-existent 3G or 4G cell phone network coverage, the app was first distributed through a network of cell phone repair shops. The shops agreed to act as physical app stores where Cubans could download the latest version of Conoce Cuba.

“Now there are about 70 of these repair shops in Havana that can […] install or update [the app] for users for free,” Cabrera said.

Today, the Conoce Cuba app is also distributed through the paquete semanal — a digital selection of TV shows, movies, foreign newspapers and music known in the U.S. as the internet in a box because it can be downloaded and shared without an internet connection.

The company’s founders acknowledged the difficulties in coding software so smartphones function as if they’re on the web even while not being connected to the internet. But a bigger challenge has been a lack of access to hardware, in part because of the U.S. embargo.

“We weren’t able to see what we’d created come to fruition because we lacked the resources,” explained Rodríguez.

Like many Cubans, however, they said they found ways to resolver, or overcome. By borrowing devices from friends and the repair shops they used to distribute the app, or by purchasing them outside Cuba, Cabrera and Rodríguez found creative ways to test and distribute their product on the island. Now, the task is to convince business owners and consumers that their product deserves a look.

“We were doing something new that people had never seen before, we had to earn their trust,” Rodríguez said. “The biggest challenge for us, and for any entrepreneur in Cuba, is to change the Cuban mentality about how to consume a tech product.”

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

By Cardiff Garcia                        ,

Financial Times, London, March 21, 2016

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

Introduction:

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

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

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

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

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

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

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

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ALTERNATIVE INSTITUTIONAL FUTURES FOR CUBA’S MIXED ECONOMY

Archibald Ritter                                                                                          

February 1, 2016

Since 2010, Cuba has been implementing a redesigned institutional structure of its economy. At this time it is unclear what Cuba’s future mixed economy will look like. However, we can be sure that it will continue to evolve in the near, medium and longer term. A variety of institutional structures are possible in the future and there are a number of types of private sector that Cuba could adopt. Indeed it seems as though Cuba were moving towards a number of possibilities simultaneously.

The objective of this note is to examine a number of key institutional alternatives and weigh the relative advantages and disadvantages for each arrangement.  All alternatives include some mixture of domestic or indigenous private enterprises, cooperative and “not-for-profit” activities. foreign enterprise on a joint venture or stand-alone basis, some state enterprises (in natural monopolies for example) and a public sector.  However, the emphasis on each of these components will vary depending on the policy choices of future Cuban governments.

The possible institutional structures to be examined here include:

1. Institutional status-quo as of 2016;

2. A mixed economy with intensified “cooperativization”;

3. A mixed economy, with private foreign and domestic oligopolies replacing the state oligopolies;

4. A mixed economy with an emphasis on indigenous small and medium enterprise.

 Option 1. Institutional Status-Quo as of 2016

The institutional “status quo” is defined by the volumes of employment in the registered and unregistered segments of the small enterprise sector, the small farmer sector, the cooperative areas, the public sector, and the joint venture sector, plus independent arts and crafts and religious personnel.  The employment numbers are mainly from the Anuario Estadístico de Cuba together with a number of guesstimates, some inspired by Richard Feinberg (2013). The guesstimate for unregistered employment in the small enterprise sector may seem exaggerated. However, a large proportion of the “cuentapropistas” utilize unregistered workers and a proportion of the underground economy does not seem to have surfaced into formally registered activities.  These employment estimates by institutional area are presented in Table 1 and illustrated in Chart 1, which also serve as a “base case” for sketching the other institutional alternatives.

Table 1 z zz

The current institutional status quo has a number of advantages but also some disadvantages. On the plus side, adhering to the status quo would avoid all the uncertainties and risks of a transition.  It would maintain the possibility of “macro-flexibility,” that is the ability for the central government to reallocate resources by command in a rapid and large scale fashion. However, in view of the numerous “macro errors” made possible by a centralized command economy (the 10 million ton sugar harvest of 1970, the “New Man” endeavor, shutting down half the sugar mills), “macro-flexibility” may be a disadvantage.  There are major advantages for the Communist Party in maintaining the institutional status quo in the economy, namely enabling political control of the citizenry (a disadvantage from other perspectives) and continuing state control over most of the distribution of income (also a disadvantage from other perspectives).  The approach also helps foster good relations with North Korea (I am running out of advantages).

There are also major disadvantages. The centralized planned economy and public enterprise system generates continuing bureaucratization of production; continuing politicization of state-sector economic management and functioning; continuing lack of an effective price mechanism in the state sector and continuing perversity and dysfunctional of the incentive structure. The result of this is damage to efficiency, productivity and innovation.

 OPTION 2. Mixed Economy with Intensified “Cooperativization”

zzzA second alternative might be to promote the authentic “cooperativization” of the economy in a major way.  This would involve permitting cooperatives in all areas, including professional activities; opening up the current approval processes; encouraging grass-roots bottom-up ventures; providing import & export rights; and improving credit and wholesaling systems for coops.

 This approach has a number of advantages. First, it would strengthen the incentive structure and elicit serious work effort and creativity on the part of those in the coops.  This is because worker ownership and management provides powerful motivation to work hard and profit-sharing ensures an alignment of worker and owner interests. This approach would generate a more egalitarian distribution of income than privately-owned enterprises. Cooperatives may possess a greater degree of flexibility than state and even private firms because their income and profits payments to members can reflect market conditions. Perhaps most important, democracy in the work-place through effective and genuine coops is valuable in itself and constitutes an advantage over both state- and privately-owned enterprise.  [Workers’ ownership and control proposed in Cuba’s cooperative legislation is ironic and perhaps impossible since Cuba’s political system is characterized by a one-party monopoly.  On the other hand it may help propel political democratization.]

The “second degree cooperatives” or “cooperative coalition of cooperatives” called for in the cooperative legislation is particularly interesting as it may permit  reaping organizational economies of scale (a la Starbucks, McDonalds, etc. ) for small Cuban coops in these areas.

An emphasis on cooperatives would help to maintain ownership and diffused control and profit-sharing among local citizens, thereby promoting greater equity in income distribution.

But cooperatives also face difficulties and disadvantages.  First, are they really more efficient than state and private enterprises? Generally speaking, cooperatives have passed the “survival test” but have not made huge inroads against private enterprise in other countries over the years.  Perhaps this is because the “transactions costs” of participatory management may be significant.  Personal animosities, ideological or political differences, participatory failures and/or managerial mistakes may occur.  And for larger coops, complex governance structures may impair flexibility.

 Second, Cuba’s actual complex co-op approval process is problematic and creates the possibility of political controls and biases. Certification of professional cooperatives is unclear. Also, the hiring of contractual workers is problematic

  • The “Hire or Fire after 90 days” rule may curtail job creation;
  • The 10% limit on contractual labor also may curtail job creation;
  • Governance may be impaired if uncommitted workers have to join.

Finally, what will be the role of the Communist Party in the cooperatives?  Will it keep out of cooperative management?  Will Party control subvert workers’ democracy and deform incentives structures?

OPTION 3. Wide Open Foreign Investment Approach zzzzA third possibility would be to open up completely to foreign investment. This would involve a rapid sell-off of state oligopolistic enterprises to deep-pocket foreign buyers such as China, the United States (in due course), Europe, Brazil, or elsewhere.  The buyers might be the Walmart’s, Lowes, Subways, or Starbucks of this world, wanting to acquire major access to the Cuban market. This is a strong possibility if existing state oligopolies (e.g., CIMEX and Gaviota) were to be privatized in big chunks. The policy requirements for this approach to occur would be rapid privatization plus indiscriminate direct foreign investment and takeovers by large foreign firms.

 This approach does have some advantages.

  • It would generate large and immediate revenue receipts for the Cuban government;
  • It would lead to large and rapid transfers into Cuba of financial resources; entrepreneurship and managerial talent; physical capital (machinery and equipment and structures); most modern technology embedded in machinery and equipment; and personnel where and when necessary;
  • The results would be rapid productivity gains, higher-productivity work and rapid GDP gains.

However, there would also be disadvantages such as:

  • Profits would flow out ad infinitum;
  • Income concentration: profits to foreign owners (e.g. the Walton family of Arkansas who practically own Walmart) and profits to oligopolistic domestic owners;
  • Oligopolistic economic structures would be damaging in the long run;
  • There would be a strengthened probability of lucrative employment and ownership for the civilian and military “Nomenclatura”;
  • Blockages or inhibitions to the development of Cuban entrepreneurship;
  • “Walmartization” of Cuban culture; dilution of Cuban uniqueness;
  • Further reduction of the potential for diversified manufacturing in Cuba (e.g. due to the  Walmart/China  mass-purchaser/mass-supplier symbiosis);
  • Probably a blockage of export diversification.

 OPTION 4: Pro-Indigenous Private Sector in a Mixed Economy

zzzzzA fourth possibility would be for Cuba to promote its own small-, medium- and larger enterprises in an open mixed economy. This would require

  • An “enabling environment” for micro, small and medium enterprise with a reasonable and fair tax regimen; an end to the discrimination against domestic Cuban enterprise (See Henken and Ritter, 2015, Chapter 7);
  •  The establishment of unified and realistic monetary and exchange rate systems;
  •  Property law and company law.

A liberalization of micro-, small and medium enterprise would also be necessary to release the creativity, energy and intelligence of Cuban citizens.  This would involve open and automatic licensing for professional enterprises;  an opening up for all areas for enterprise – not only the “201”; permission for firms to expand  to 50 + employees in all areas; creation of wholesale markets for inputs; open access to foreign exchange and imported inputs;  full legalization of “intermediaries” ; and permission for advertising.

 This approach has some major advantages:

 Oligopoly power would be more curtailed compared to Option 3;

  • The economy would be more competitively structured with all the benefits this generates;
  • It would encourage a further flourishing and evolution of Cuban entrepreneurship;
  • It would permit the development of a diversified range of manufacturing and service activities and also a greater diversification of exports;
  • It would provide a reduced role for the “Nomenclatura” of military and political personnel and their families that would otherwise gain from the rapid privatization of state enterprises;
  • It would decentralize economic and thence political power and reduce the power for government to exert political influence through economic control;
  • It would generate a more equitable distribution of income among Cuban citizens and among owners than Option 3;
  •  Profits would remain in Cuba;
  •  There would be a stronger maintenance of Cuban culture.

There would be some disadvantages with this approach.

  • There would be no massive and immediate cash infusion to Government from asset sell-offs.   Or is this an advantage?  [more effective use of in-coming revenues]
  •  Perhaps there would be a slower macroeconomic recuperation;
  • There would be slower inflows of technology, finance, managerial know-how – but more domestically controlled.

Conclusion

Most likely, Cuban policy-makers in the government of Raúl Castro, the government of his immediate successor, and future governments of a politically pluralistic character will design policies that ultimately will lead to some hybrid mixture of the above four possibilities.  I of course will have little or no say in the process. However, my personal preference would be for an economy resembling the structure in the accompanying chart, with a large “indigenous” private sector, a significant cooperative sector, of course a large public sector for the provision of public goods, a small sector of government-owned enterprises, and a significant private foreign and joint venture sector. zzzzzzSo my bottom-line recommendations for current and future governments of Cuba would be:

  1. Utilize Cuba’s abundant resource — well-educated, innovative, strongly-motivated entrepreneurship — effectively, by further liberalizing the regulatory and fiscal regime for the indigenous micro-, small and medium enterprise sector, thereby also promoting Cuba’s indigenous economic culture;
  2. Use Cooperatives and “Coops of Coops” where possible;
  3.  Avoid “Walmartization” & homogenization of Cuban economy and culture by utilizing an activist policy towards direct foreign investment.

Bibliography

Feinberg, Richard E., Cuba’s Economic Change in Comparative Perspective, Brookings Institution, 2013

Oficina Nacional de Estadísticas, Anuario Estadístico de Cuba, 2014

Ritter, Archibald and Ted Henken, Entrepreneurial Cuba, The Changing Policy landscape, Boulder Colorado: Lynn Rienner, 2015

 

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WHY THE U.S. SHOULD EMBRACE THE RISE OF CUBA’S ENTREPRENEURS

Huffington Post 01/25/2016;

Original Article here: Cuba’s Entrepreneurs

Ted A. Henken, Former President of the Association for the Study of the Cuban Economy (ASCE) and Baruch College (CUNY) Professor

Cuentapropista (a Cuban entrepreneur) is a term that up until a few years ago would not have been used to describe a large sector of Cuba’s centralized and still heavily planned economy. But despite heavy odds, I have recently witnessed the proliferation of Cuban entrepreneurship and its positive effects on the Island. As a Yuma (a Cuban term of endearment referring to visiting Americans), I’ve seen Cuba’s “non-state” sector expand considerably, giving testimony to the entrepreneurial successes that everyday Cubans are achieving, and hunger to expand upon.

Engaging directly with Cuba’s entrepreneurial sector — while we push for an end to our pernicious trade embargo — allows us to remove the U.S. as the Cuban government’s bête noir and empower more Cubans to be the masters of their own fates. Some hardliners in the U.S. would argue that engaging any sector in Cuba is helping the monopolistic and undemocratic Cuban government consolidate its power. However, the last 50 years have shown that isolation has only aided the Cuban government in strengthening its monopolies while deflecting blame for its failing economy onto the U.S. embargo. Engagement with cuentapropistas, on the other hand, gives us the chance to begin to build relationships of trust and mutual benefit with the Cuban people.

In the face of constant economic instability and state control, cuentapropistas are the defining social and economic catalyst for Cuba’s future. They are men and women who display incredible motivation and creativity in their business ventures, and are willing to take risks, often at great personal cost. As a result, the burgeoning private sector is now one of the most productive areas of an otherwise failing economy.

In a fact sheet I recently released in partnership with Engage Cuba and the Cuba Emprende Foundation, we found that while Cuba has the most educated, low-cost labor force in the world, private sector opportunities for Cuban professionals continue to be severely limited. As a result, entrepreneurial Cubans have taken their fate into their own hands and are now estimated to be one-third of Cuba’s total workforce. The rate of self-employment has surged to new heights in the last five years, rising from just under 150,000 to over half a million cuentapropistas by mid-2015.

A surprising area of self-employment growth is in telecommunications. The chronic scarcities and bottlenecks caused by the lethal combination of state socialist planning and the U.S. embargo have resulted in the incubation of a true “maker” culture. Highly trained but underemployed computer programmers and telecom agents have started launching innovative start-ups like AlaMesa and Conoce Cuba or designing “lean” software and offline mobile apps for both a Cuban and international clientele. Aiming to encourage this dynamic phenomenon, new U.S. regulations issued by the Obama Administration during 2015 now allow the contracting of Cuba’s private sector IT and other professionals.

But don’t be fooled. There are still drastic internal barriers for motivated, business-minded Cubans. The tax structure is burdensome, the private sector is legally cut off from international trade (apart from imports and exports via “suitcase commerce”), and cuentapropistas enjoy little reliable access to wholesale goods, rental space, credit, or foreign investment. Basic infrastructure is woefully outdated, and Internet access — the driver of any modern business — is still very limited and costly. Perhaps this is why despite unprecedented growth over the past five years, the cuentapropista sector contracted for the first time in the second half of 2015, falling to 496,400 by January 2016.

There are also serious structural workforce issues. For example, every year over 4,000 information technology engineers graduate across the country, but there are a limited number of state positions available to them. Therefore, many of these graduates are forced to join the historic exodus of young professionals abroad in order to find an economic return on their educations.

The possibilities for these young entrepreneurs will be virtually limitless once the island is equipped with a modern telecommunications infrastructure — something that can be made possible with the help of American investment. But in order for U.S. telecommunication services and other businesses to help bring meaningful change in Cuba, Congress needs to lift the trade embargo.

Because while American entrepreneurs and businesses await an end to the embargo, both Americans and Cubans are missing out. It is estimated that the U.S. is currently forgoing 1.6 billion in potential sales to Cuba annually due to current policy. Americans from across political parties have duly noted this fact. According to a Pew Research Center report, 72 percent of Americans, including 59 percent of Republicans, favor ending the Cuban trade embargo.

It is ironic that many embargo supporters rightly critique the Cuban government for restricting the free market inside the Island while simultaneously supporting an embargo that unfairly restricts American businesses abroad and any benefits they could bring to Cuba’s struggling entrepreneurs and its people. By allowing Americans to bring business and investment to the Island, we will grow our own economy while supporting the Cuban people, including cuentapropistas, in the process.

henkenteaching_001_jpgTed A. Henken, Ph.D., is the President Ex-Officio of the Association for Study of the Cuban Economy (ASCE) and co-author of the book “Entrepreneurial Cuba: The Changing Policy Landscape.” Henken is a member of the Policy Council of Engage Cuba, a bipartisan organization dedicated to mobilizing American businesses and non-profit groups to support the ongoing U.S.Cuba normalization process.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

zzzzzzzDany

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

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

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

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

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

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

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

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

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

 zzzzzzzz

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