Tag Archives: Underground Economy

BOOK REVIEW, ENTREPRENEURIAL CUBA: THE CHANGING POLICY LANDSCAPE

Boulder, CO: First Forum Press, 2015. 373 pp.

By Archibald R. M. Ritter and Ted A. Henken

Review by Sergio Díaz-Briquets,

Cuban Studies, Volume 46, 2018, pp. 375-377, University of Pittsburgh Press

The small business sector, under many different guises, often has been, since the 1960s, at the center of Cuban economic policy. In some ways, it has been the canary in the mine. As ideological winds have shifted and economic conditions changed, it has been repressed or encouraged, morphed and gone underground, surviving, if not thriving, as part of the second or underground economy. Along the way, it has helped satisfy consumer needs not fulfilled by the inefficient state economy. This intricate, at times even colorful, trajectory has seen the 1968 Revolutionary Offensive that did away with even the smallest private businesses, modest efforts to legalize self-employment in the 1979s, the Mercados Libres Campesinos experiment of the 1980s, and the late 1980s ideological retrenchment associated with the late 1980s Rectification Process.

Of much consequence—ideologically and increasingly economically—are the policy decisions implemented since the 1990s by the regime, under the leadership of both Castro brothers. Initially as part of Special Period, various emergency measures were introduced to allow Cuba to cope with the economic crisis precipitated by the collapse of the communist bloc and the end of Soviet subsidies. These early, modest entrepreneurial openings were eventually expanded as part of the deeper institutional reforms implemented by Raúl upon assuming power in 2006, at first temporarily, and then permanently upon the resignation of his brother as head of the Cuban government.

In keeping with the historical zigzag policy pattern surrounding small businesses activities—euphemistically labeled these days as the “non-state sector”—while increasingly liberal, they have not been immune to temporary reversals. Among the more significant reforms were the approval of an increasing number of self-employment occupations, gradual expansion of the number of patrons restaurants could serve (as dictated by the allowed number of chairs in privately owned paladares), and the gradual, if uneven, relaxation of regulatory, taxing, and employment regulations. Absent has been the authorization for professionals (with minor exceptions, such as student tutoring) to privately engage in their crafts and the inability to provide wholesale markets where self-employed workers could purchase inputs for their small enterprises.

The authors of this volume, an economist and a sociologist, have combined their talents and carefully documented this ever-changing policy landscape, including the cooperative sector. They have centered their attention on post–Special Period policies and their implications, specifically to “evaluate the effects of these policy changes in terms of the generation of productive employment in the non-state sector, the efficient provision of goods and services by this emergent sector, and the reduction in the size and scope of the underground economy” (297).

While assessing post-1990 changes, Entrepreneurial Cuba also generated a systematic examination of the evolution of the self-employment sector in the early decades of the revolution in light of shifting ideological, political, and economic motivations. Likewise, the contextual setting is enhanced by placing Cuban self-employment within the broader global informal economy framework, particularly in Latin America, and by assessing the overall features of the second economy in socialist economies “neither regulated by the state nor included in its central plan” (41). These historical and contextual factors are of prime importance in assessing the promise and potential pitfalls the small enterprise sector confronts in a changing Cuba.

Rich in its analysis, the book is balanced and comprehensive. It is wide ranging in that it carefully evaluates the many factors impinging on the performance of the small business sector, including their legal and regulatory underpinnings. The authors also evaluate challenges in the Cuban economic model and how they have shaped the proclivity for Cuban entrepreneurs to bend the rules. Present is a treatment of the informal social and trading networks that have sustained the second economy, including the ever-present pilfering of state property and the regulatory and transactional corruption so prevalent in Cuba’s centralized economy.

While none of the above is new to students of the Cuban economy—as documented in previous studies and in countless anecdotal reports—Ritter and Henken make two major contributions. First, they summarize and analyze in a single source a vast amount of historical and contemporary information. The value of the multidisciplinary approach is most evident in the authors’ assessment of how the evolving policy environment has influenced the growth of paladares, the most important and visible segment of the nonstate sector. By focusing on this segment, the authors validate and strengthen their conclusions by drawing from experiences documented in longitudinal, qualitative case studies. The latter provide insights not readily gleaned from documentary and statistical sources by grounding the analysis in realistic appreciations of the challenges and opportunities faced by entrepreneurial Cubans. Most impressive is the capacity of Cuban entrepreneurs to adapt to a policy regime constantly shifting between encouraging and constraining their activities.

Commendable, too, is the authors’ balanced approach regarding the Cuban political environment and how it relates to the non-state sector. Without being bombastic, they are critical of the government when they need to be. One of their analytical premises is that the “growth of private employment and income represents a latent political threat to state power since it erodes the ideals of state ownership of the means of production, the central plan, and especially universal state employment” (275).

This dilemma dominates the concluding discussion of future policy options. Three scenarios are considered possible. The first entails a policy reversal with a return to Fidel’s orthodoxy. This scenario is regarded as unlikely, as Raúl’s policy discourse has discredited this option. A second scenario consists of maintaining the current course while allowing for the gradual but managed growth of the non-state sector. While this might be a viable alternative, it will have limited economic and employment generation effects unless the reform process is deepened by, for example, further liberalizing the tax and regulatory regimes and allowing for the provision of professional services.

The final scenario would be one in which reforms are accelerated, not only allowing for small business growth but also capable of accommodating the emergence of medium and large enterprises in a context where public, private, and cooperative sectors coexist (311). As Ritter and Henken recognize, this scenario is unlikely to come to fruition under the historical revolutionary leadership, it would have to entail the resolution of political antagonisms between Washington and Havana, and a reappraisal by the Cuban government of its relationship with the émigré population. Not mentioned by Ritter and Henken is that eventual political developments—not foreseen today—may facilitate the changes they anticipate under their third scenario.

In short, Entrepreneurial Cuba is a must-read for those interested in the country’s current situation. Its publication is timely not only for what it reveals regarding the country’s economic, social, and political situation but also for its insights regarding the country’s future evolution.

…………………………………………………………………………….

Table of Contents

 Table of Contents,

 List of Charts and Figures

Chapter I Introduction       

Chapter II      Cuba’s Small Enterprise Sector in International and Theoretical Perspective

Chapter III    Revolutionary Trajectories, Strategic Shifts, and Small Enterprise, 1959-1989

Chapter IV    Emergence and Containment During the “Special Period”, 1990-2006

Chapter V        The 2006-2011 Policy Framework for Small Enterprise under the Presidency of    Raul Castro

Chapter VI    The Movement towards Non-Agricultural Cooperatives

Chapter VII  The Underground Economy and Economic Illegalities

Chapter VIII  Ethnographic Case Studies of Microenterprise, 2001 vs. 2011

Chapter IX  Summary and Conclusions

APPENDIX                                                              

GLOSSARY                                                                                                                         

BIBLIOGRAPHY

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EL PAQUETE: CUBA’S UNDERGROUND NETWORK IS LIKE NETFLIX AND SPOTIFY, WITHOUT THE INTERNET

“Quartz Obsession”

March 16, 2018 at 3:46:38 PM

Cuba has one of the lowest rates of internet usage in the Western Hemisphere, and access to media is strictly restricted—but that doesn’t stop Cubans from watching Game of Thrones. Their secret is El Paquete Semanal (“The Weekly Packet”), a clandestine in-person file-sharing network that distributes hard drives and flash drives full of media.

Nobody quite knows how El Paquete, which has thrived since the mid-2000s, is created or how it makes its way across the country every week. But Cubans have come to rely on the pervasive distribution of music, TV, and movies—not to mention pirated software and e-commerce platforms.

Ultimately, the uniquely Cuban tech phenomenon is proof that just like life in Jurassic Park, information always finds a way—especially when you’re jonesing for the latest episode of a subtitled South Korean soap opera and the closest open internet is an ocean away.

BY THE DIGITS

  • 5.6%: Cuban households with dial-up connections, at speeds of 4–5 kB/s
  • 386%: Cost of household internet service in Cuba as a percentage of per capita GDP
  • 0.007%: Cuban broadband internet penetration (8,157 connections for 11 million people)
  • 2018: Year the Cuban government has promised to offer mobile internet service
  • $2: Cost per hour of public Wi-Fi hotspot access, equivalent to 10% of the average monthly salary
  • $3: Estimated cost of one week’s Paquete, accessed on a Monday
  • $1: Estimated cost on a Wednesday

 

How does it work?

There are a lot of question marks about El Paquete—more accurately, Los Paquetes, as there are reportedly several versions—but this much is clear: At the end of each week, its creator(s) compile the most in-demand media of the week—roughly 15,000 to 180,000 files, 1 terabyte in total. The provenance is murky, but the most likely source is a mix of illicit broadband internet access, secret satellite dishes, and hard drives and flash drives smuggled in from overseas.

From there, it’s top-down distribution. A network of Paquete wholesalers (many based in street-level phone repair and DVD shops) copy the contents onto their own hard drives and flash drives, which are then copied many more times. The last links are the door-to-door Paquete delivery guys, who will bring it to individual residences, copying over select files or the entire thing to customers.

The network is based in the capital Havana, but El Paquete also makes its way to most Cuban towns, with a noticeable time lag. El Paquete is most expensive early in the week; by Thursday or so, prices will have dropped by 50% or more.

 The kingpins of El Paquete

Former engineering student Elio Hector Lopez is one of the people credited with starting El Paquete around 2006, where it built on longstanding clandestine networks used to distribute physical media like books, videotapes, CDs, and DVDs.

“At the beginning we saw this as a way to make money—but after having penetrated the entire country we see it more as a responsibility,” he told NBC in 2015.

“For the time being, El Paquete replaces the Internet for those who don’t have it,” Lopez told Reuters. “If tomorrow El Paquete disappears I don’t know what people would do, it’s like water, or a pill for the Cuban body.” According to the CBC, as of 2016 Lopez had moved to the United States.

“El Paquete was founded by several people, each with a desire to find a way to entertain their towns,” he told Polygon last year. “We wanted to find a way for the island to see the world in ways outside of politics, showing them culture, sports, entertainment, economy and society, showing them all the things going on in the world that weren’t making it to our TVs.”

 Cuba’s make-do culture

El Paquete is a distinct phenomenon of the internet age, but according to Nick Parish, author of a fascinating in-depth study,there’s an interesting precedent in Cuban history. After the collapse of the Soviet Union in 1989 left Cuba reeling, “the military issued a book called “Con Nuestros Propios Esfuerzos” (With Our Own Efforts) that served as a chronicle to survival through shared knowhow, with everything from horticultural knowledge and recipes to herbal medicines to public health to transport, featuring tips submitted by ordinary Cubans.”

“The make-do culture in Cuba, known locally by the term “resolver,” and the propensity for Cubans to bring a unique isolated, constrained lens to solving problems is important to bear in mind as we see some of the features and systems that make el paquete a unique Cuban solution.”

This week’s list

A volunteer site, Paquete de Cuba, lists the weekly contents, though they’re not available for download.

In the absence of actual internet access, techies in Havana and elsewhere have created a homebrewed network called SNET “that reproduces much of the consumer internet we know in the free world,” according to Wired. It includes copycat versions of Facebook and Instagram—and facilitates dissemination of El Paquete.

 

How does advertising work?

There are classifieds in El Paquete. According to a report from the Yugoslavia-based Share Foundation: “If you send an SMS to a certain number, the content of the message will appear in the El Paquete folder ‘classifieds’ in form of a jpeg image that has your message on one half and some advertisement on the other half.”

But local ads are also embedded directly into the content: Users might also see video advertisements for local services embedded at the end of a trailer for a Hollywood movie, or ads sandwiched between magazine pages.

There’s even an e-commerce supplement: “a 199-page PDF catalog with interlinked product pages and ordering instructions, so people can purchase handmade products such as purses, shoes, boots, backpacks, and belts,” according to Nick Parish.

 So, does the government know?

Cuba’s authoritarian government is known for its censorship and intolerance of dissent, which has prompted many conspiracy theories about El Paquete: Is it all a government scheme to placate the masses with the opiate-like effects of western mass media?

There’s perhaps one telltale clue that Raul Castro’s government chooses to tolerate the existence of El Paquete: It contains no porn or political speech, or even western news accounts that might run afoul of the country’s communist party.

“There exists a kind of established agreement in which El Paquete must not reproduce content critical of the government, propaganda, or pornography, and in exchange the state turns a blind eye,” one Paquete distributor told Cubanet.

At least, that was true until recently: Cubanet reports a new folder called “Tremendo lío” (“tremendous mess”) recently appeared in El Paquete, which contains videos from some Cuban social media stars who voice anti-government views, along with those who support it. Is this a brave new era for El Paquete, or a signal that a government crackdown is coming?

“In a country where materials, shopping, and consumption are limited to food and maybe clothing, El Paquete becomes a luxury, a form of asserting one’s independence from the state’s attempts to suppress individuality.”

— “El Paquete: A qualitative study of Cuba’s Transition from Socialism to Quasi-Capitalism,” an undergraduate thesis by Princeton sociology major Dennisse Calle.

“Prefiero gastar un dólar que estar como un zombi. (I would rather spend a dollar than be a zombie.)”

 El Paquete customer Alejandro Batista

 

 

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CHALLENGES AND REALITIES OF CUBA’S HEALTH CARE SYSTEM

Fernando Ravsberg, enero 25, 2018

Artículos de Fernando Ravsberg, English Version, Política, Salud, Sociales

Last November, “Maria de la Caridad” was admitted into one of the best hospitals in the country, waiting for her knee replacement prosthesis, when she slipped in a puddle of water out in the hospital’s corridor and broke both her arms. Now, she’s back at home in a worse state than before.

It’s hard to explain to someone who isn’t Cuban, how a hospital with such high professional standards and so much modern equipment can be lacking in personnel to collect dirty dishes or keep the floor which orthopedic patients walk along, dry.

It’s just as hard as understanding the fact that pharmaceutical employees are dedicating themselves to counterfeit medicines for children so they can be sold secretly via the illicit pharmacy network, as Cuban press reported a few days ago.

How can there be medicine shortages and a black market in a country with scientists capable of inventing innovative vaccines to treat different types of cancer or medicines that prevent diabetes patients from having to be amputated?

There is so much chaos that you can buy any medicine without needing a medical prescription at many pharmacies, as long as you are willing to pay extra on the side. However, all lines are crossed when medicines for children are tampered with.

During the crisis of the ‘90s, I saw a black market seller offering powdered milk to a mother with two small children. She said that it was top quality because it was stolen from the school for children with disabilities. The mother was appalled and refused to buy it.

There are many Cubans like her who clearly know where their boundaries lie, but even they cross these lines when a son is having an asthma attack or their grandfather needs to monitor their heartrate. So they go looking for the medicines they need wherever they may be and they pay whatever is being asked for them.

The black market in Cuba’s public health sector is a death trap. Let’s remember how thirty patients died of cold and hunger at Havana’s psychiatric hospital, when the people who were responsible for protecting them, stole their food and blankets.

We could spend hours talking about how morally bankrupt those who make a business out people’s health are but we can’t explain how these people, who were once young and had the vocation to protect and help others, a pharmacist, a nurse or a doctor, can stoop so low.

Among the causes for this situation, the chronic shortages of medicines and low wages particularly stand out. The combination of both these factors leads to the black market, which we have all been responsible for, some as sellers and others as buyers.

 A few years ago, the government promised that wages would improve in correlation with an increase in productivity. Today, the health sector brings in 70% of the country’s revenue in hard currency but wages continue to be way below what the basic foods costs.

Public health sector workers aren’t even given any perks that wouldn’t cost the State’s coffers a single cent, such as being able to purchase a property for its cost price and in hard currency or being able to freely import a car, after having completed their mission abroad.

And the reality is that if wages of medical personnel don’t increase, the wages of cleaning staff can’t get any better either. Patients will continue to receive “stem-cell” therapy for free while they continue to slip and fall in puddles of water that nobody is cleaning up.’

Many cleaning and technical employees leave the health system looking for a more dignified income in the private sector, that is to say an income that allows them to get to the end of the month without having to steal. Official press “kick the bucket” blaming self-employment for this exodus.

The real problem lies in stagnant reforms, in using the health sector and pharmaceutical industry’s incredible earnings to finance the State’s shortfall companies instead of using them to feed the “hen that lays the golden eggs.”

There are morally bankrupt criminals in the black market but many other people (maybe most of them) only take part so as to meet their family’s basic needs or are forced to because of pressing needs, like the medicines only available from illicit sources.

Ideology awareness classes aren’t enough to stop this loss of values. The answer could once again lie in Jose Marti’s insightful way of seeing things when he explained that “given human nature, one needs to be prosperous to be good.”

In 2017, Cuba reached its record child mortality rate of only 4 per 1000 newborns. Public health needs the financial resources it brings in so as to keep up these levels of efficiency.

Translation: Havana Times

About Fernando Ravsberg: Nacido en Uruguay, corresponsal de Público en Cuba y profesor del post grado de “Información internacional y países del Sur” de la Universidad Complutense de Madrid. Fue periodista de BBC Mundo, Telemundo de EEUU, Radio Nacional de Suecia y TV Azteca de México. Autor de 3 libros, El Rompecabezas Cubano, Reportajes de Guerra y Retratos.

 

 

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ENTREPRENEURIAL CUBA: THE CHANGING POLICY LANDSCAPE

ENTREPRENEURIAL CUBA: THE CHANGING POLICY LANDSCAPE

 Archibald R.M. Ritter and Ted A. Henken

 2014/373 pages
ISBN: 978-1-62637-163-7 hc $79.95 $35

A FirstForumPress Book

New Picture (4)

Special limited-time offer!Mention e-blast when ordering

 CLICK HERE TO READ THE INTRODUCTION:  Cuba’s Chabging Policy Landscape” 

“A provocative, compelling, and essential read. The ethnographic work alone is worth the price of admission.” John W. Cotman, Howard University

“A multifaceted analysis of Cuban economic activity…. Ritter and Henken paint a lively picture of daily life in entrepreneurial Cuba.” Julia Sweig, Council on Foreign Relations

 SUMMARY

During the presidency of Raúl Castro, Cuba has dramatically reformed its policies toward small private enterprises. Archibald Ritter and Ted Henken consider why—and to what effect.

After reviewing the evolution of policy since 1959, the authors contrast the approaches of Fidel and Raúl Castro and explore in depth the responses of Cuban entrepreneurs to the new environment. Their work, rich in ethnographic research and extensive interviews, provides a revealing analysis of Cuba’s fledgling private sector.

THE AUTHORS

 Archibald R.M. Ritter is distinguished research professor of economics and international  affairs at Carleton University.

Ted A. Henken is associate professor of sociology and Latin American studies at Baruch College, CUNY.

TABLE OF CONTENTS

  • Cuba’s Changing Policy Landscape.
  • The Small-Enterprise Sector.
  • Revolutionary Trajectories and Strategic Shifts, 1959–1990.
  • The “Special Period,” 1990–2006.
  • Policy Reform Under Raúl Castro, 2006–2014.
  • The Movement Toward Non-Agricultural Cooperatives.
  • The Underground Economy.
  • The Rise, Fall, and Rebirth of the Paladar, 1993–2013.
  • The Future of Small Enterprise in Cuba.
  • Appendix 1: Timeline of Small Enterprise Under the Revolution.
  • Appendix 2: 201 Legalized Self-Employment Occupations.

Lynne Rienner Publisher’s page on Entrepreneurial Cuba: https://www.rienner.com/title/Entrepreneurial_Cuba_The_Changing_Policy_Landscape

For order and general inquiries, please contact: questions@rienner.com

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The Causes & Consequences of Cuba’s Black Market

21 August 2014 –  Havana Times – Fernando Ravsberg*

http://www.havanatimes.org/?p=105653

HAVANA TIMES — The Cuban press is out to get re-sellers, as though their existence were news to anyone, as though they just now realized there is a black market that’s on every street corner in the country, selling just about everything one can sell.

In a news report aired on TV, they went as far as insinuating that some employees at State stores are accomplices of those who hoard and re-sell products. They are now “discovering” that the black market stocks up, in great measure, thanks to the complicity of store clerks. The reporting remains on the surface, addressing the effects but not daring to go to the root of a problem that has burdened the country for decades as a result of the chronic shortage of products – from screws to floor mops.

During the early years of the revolution, these shortages could be chalked up to the US embargo. Today, however, Cuba maintains trade relations with the entire world and can purchase the products people need in other markets. It doesn’t even seem to be a financial problem, because the products become available and disappear intermittently. Shaving foam can disappear for a couple of months and reappear at all stores overnight.

These ups and downs are what allow a group of clever folks to hoard up on and later re-sell these products at higher prices. A lack of foresight and planning when importing is what creates these temporary shortages that make the work of hoarders easier.

There is no doubt Cuba has a planned economy. The question is whether it is actually well planned. The truth is that, for decades, the country’s domestic trade system has functioned in a chaotic manner and no one has been able to organize it minimally.

A foreign journalist I know recently noted that, when toilet paper disappeared from all State shops, a supermarket in Havana had a full stock of pickled partridge that no one buys.  Who would decide to buy such a luxury canned product at a time when most store shelves are practically empty? The story brings to mind that anecdote involving a government official who imported a snow-sweeper to Cuba.

The Market and Consumption

Cuba’s domestic trade system doesn’t require “reforms”, it demands radical change, a new model. Such a change should begin with Cuba’s importers, bureaucratic companies that are ignorant of the interests and needs of consumers and buy products without rhyme or reason.

Many of their employees receive [under the table] commissions from suppliers and therefore prioritize, not the country’s interests, but their own pockets. They are the same people who received money from the corrupt foreign businessmen recently tried and convicted in Cuba.

To plan the country’s economy, the government should start by conducting market studies and getting to know the needs of consumers, in order to decide what to purchase on that basis. It Is a question of buying the products people need and in quantities proportional to the demand.

Planning means being able to organize import cycles such that there is regular supply of products, without any dark holes, like the ones that currently abound in all sectors of Cuba’s domestic trade, from dairy products to wood products.

Sometimes, this chaotic state of affairs has high costs for the country’s economy, such as when buses are put out of circulation because spare pieces were not bought on time, there isn’t enough wood to build the crates needed to store farm products or a sugar refinery is shut down because of lack of foresight.

Even the sale of school uniforms at State subsidized prices experiences these problems owing to a lack of different sizes. This is a problem seamstresses are always willing to fix, charging the parents a little extra money.

Cuba’s entire distribution system is rotten. Importers are paid commissions, shopkeepers sell products under the counter, butchers steal and resell poultry, ration-store keepers mix pebbles in with beans, agricultural and livestock markets tamper with weighing scales and bakers take home the flour and oil.

In the midst of this chaos we find the Cuban consumer, who does not even have an office he or she can turn to and demand their rights (when they are sold rotten minced meat, and old pair of shoes or a refrigerator that leaks water, for instance).

Speculation is no doubt a reprehensible activity, but it is not the cause of the black market. The country may launch a new campaign against hoarders, but it will be as unsuccessful as all previous one if an efficient commercial system isn’t created.

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

Dr.  Juan Triana Cordoví, Universidad de la Habana

November 15, 2012

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

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

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

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

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

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

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

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

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

II. “Cuentapropismo” beyond “cuentapropismo

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

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

Table 1. Employment Dynamics

         2008    2009      2010      2011

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

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

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

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

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

Source: ONEI, Anuario estadístico de Cuba 2011.

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

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

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

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

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

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

 III. Institutionalis m and “cuentapropismo

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

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

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

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

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

• Conferred the status of taxpayers and Social Security recipients.

• Authorized access to bank financing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mercado Atesanal, on the Malecon, photo by Arch Ritter

Bibliography.

Castro R. Periódico Granma, 20-12-10

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

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

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

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

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

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

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

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

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

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

Original Essay Here: The Havana Genius Bar

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

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

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

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

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

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

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

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

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

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

 

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Mark Frank: “Cuba cracks down on “Guayabera” crime”

One morning this month the nearly half a million inhabitants of Sancti Spiritus, a leafy province in central Cuba, woke up to find their local government had fallen.

Rather than some kind of US-inspired coup, however, the removal and subsequent arrest of five senior provincial officials was part of the increasing drive by Raúl Castro, president, against white-collar corruption – or white “Guayabera” crime as it is called after the distinctive Cuban dress shirt.

The crackdown, launched two years ago, has already cost hundreds of senior Cuban Communist party officials, state managers and employees their jobs and sometimes their freedom, as Mr Castro has struggled to shake-up the country’s entrenched bureaucracy and move the country towards a less centralised and more market-driven economy.

Although such campaigns are not new, the intensity of the current drive is unprecedented, as are the number of high level targets and breadth of their illicit activities, Communist party and government insiders said this week.

As well as Sancti Spiritus’s wayward officials, Havana’s mayor resigned last month after most of the capital’s top food administrators were swept away in another probe.

Last year, in the all-important nickel industry, which exports some $2bn annually, managers from mines and processing plants up to deputy ministers of basic industry were arrested after “diverting resources” and padding export weights, according to industry sources. Yadira García Vera, the minister, was eventually fired.

The drive began in earnest in 2009 when Mr Castro, 84, opened the Comptroller General’s Office, saying it would “contribute to the purging of administrative and criminal responsibility, both the direct perpetrators of crimes and the secondary ones . . . [who] do not immediately confront and report them.”

The move is designed to try and allow state-owned companies to operate more profitably, as Mr Castro wants them to, while also preventing the kind of corruption that marked Russia’s and China’s own moves to the market.

“The creation of the Comptroller General in 2009 was a significant step in the first phase of Cuba’s reform,” said Arturo López-Levy, a former analyst at Cuba’s interior ministry and now a Cuba expert at the University of Denver in the United States.

“East Asia demonstrated the wisdom of creating an anti-corruption agency early in the economic transition from a command economy.”

Cuba is fertile ground for corruption. After 20 years of economic crisis, and with state wages worth around $20 a month – a level that the government admits does not cover necessities – almost all Cubans engage in illegal activities to survive.

At the same time, the government is loosening regulations on small private business even as it cuts subsidies and lays off government workers, thereby requiring more sacrifice from state employees and pensioners.

“Raúl Castro has clearly gone to extraordinary lengths to make it clear that corruption – particularly at the higher levels – will not be tolerated, signalling he means business and higher-ups must sacrifice too,” said John Kirk, a Latin America expert at Dalhousie University in Halifax, Canada.

Cuba does not suffer from drug-related corruption like many of its neighbours, said western diplomats and foreign security personnel who work closely with Havana on interdiction.

Rather, according to foreign investors, the biggest problems they face when forming domestic joint ventures are the long delays starting and then operating a Cuban business – in part due to draconian regulations designed to prevent white-collar crime.

That is not the case in the external sector, where foreign trade and off-shore activities make corruption easier.

“The huge disparities between peso salaries, worth just a few dollars a month, and the influx of strong currencies, even in very small amounts, create extremely strong incentives to become corrupted,” said one western manager, who requested anonymity.

Cuban cigars have become the most emblematic case. Distributors in Canada and Mexico had long complained that millions of valuable “puros” – high quality cigars – were somehow making their way to other Caribbean islands and then being smuggled into their franchised territories.

But it was not until last year that the Cohiba-puffing Manuel García, the long-time vice-president of Habanos S.A., a joint venture with London-listed Imperial Tobacco and the exclusive distributor of the island’s famous cigars, was arrested along with a number of other executives and staff.

“Turns out we were complaining to the very people who had set up the sophisticated operation, complete with shell companies and paths to avoid import duties,” one foreign distributor said.

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A Major Slow-Down for the Public Sector Layoff / Private Sector Job Creation Strategy

Raul Castro and the Council of Ministers, Granma, March 1, 2011

By Arch Ritter I had been looking in vain for any concrete information on public sector redundancies and the granting of self-employment licenses since December 2010.  After some searching in the Cuban press, the foreign press and various blogs, I came up empty handed. I was starting to think that the program had been aborted. Then yesterday, Raul announced in a publicized meeting of the Council of Ministers a major slow-down of the program, noting, in the words of the journalists, that “the up-dating of our model is not the work of a day or even a year but because of its complexity, it will require not less than a five year period to unfold its implementation” (Granma, 1 de Marzo de 2011) As far as I can determine, there have in fact been virtually no lay-offs yet in the public sector, although the original March 31 target for 500,000 fired workers is close at hand. Or at least, none have been clearly reported. The latest numbers for license-granting for the end of December 2010 indicated that some 75,000 new licenses had been issued with another 8,340 still in process – a slow start towards the March 1 target date. Granma, 7 de enero de 2011 The slow-down and delay in implementation is understandable.  Although the original proposal was in the right direction, it was seriously flawed and excessively hurried. The most obvious weakness of the strategy was that it called for lay-offs first, followed by or concurrently with job creation in the micro-enterprise sector which was only slightly liberalized in October 2010. As various critics quickly observed, this was placing the “cart before the horse”. The original time frame for the lay-off process – from July 20, 2010 to March 31, 2011 – became even more condensed as months of inactivity followed months. If implemented, this approach would have amounted to a draconian type of shock therapy. The process of firing workers is not easy under any circumstances. Though the Government stressed repeatedly that those made redundant would be supported by the state, the prospects of being laid off and having to establish one’s own micro-enterprise in a policy environment that is still difficult if not hostile must be unnerving for many people. It was to be implemented during the Cuban recession – (though Cuba is now appears to be in a process of recovery, due to higher nickel prices, increased tourism including US tourism, higher remittances.) Moreover, workers have no independent Unions to defend their rights during such a process of redundancies. (It was the Central de Trabajadores de Cuba that announced the lay-off strategy.) There was a potential for irregularities and perversions in the firing process as well, with redundancy being determined by factors such as Party faithfulness, personality issues,  or friendship with the relevant officials, rather than labor effectiveness, which is usually difficult to determine in any case. Moreover, the strategy, which was to be a defining component of economic reform and structural change, was adopted before the public discussions around the Proyecto de Lineamientos de la Política Económica y Social del Partido y la Revolución,” There had been no public input or discussion in the media or public forums before this strategywas sprung on the Cuban people. Furthermore, it was clear from the start that the liberalization of self-employment was insufficient for the necessary level of job creation. (See Perez and Vidal, Ritter and Mesa-Lago for example.) There are some measures that are supportive of micro-enterprise expansion. These include a small increase in the permitted range of activities, minor relaxation of regulations and a small modification of the tax regime. More significant and positive are the liberalization of licensing and the “de-stigmatization” of the self-employed by the media and politicians. However, a variety of policies continues to constrain the activities of micro-enterprises and will prevent it from expanding as envisioned by the Government: –        Exceedingly onerous taxation continues. –        The tax on hiring workers will discourage job creation. –        A narrow definition of legal activities will limit enterprise and job creation. –        Exclusion of virtually all high-tech and professional activities blocks development of knowledge-intensive enterprises and wastes the training of the highly educated. –        Bizarre restrictions remain (such as a 20 chair limit on restaurant chairs). –        Restrictions and prohibitions on hiring workers remain. –        Taxes and regulations result in the stunting of enterprises which prolong inefficiencies and promote the underground economy. –        Unreasonable restrictions and heavy taxes breed contempt and non-compliance for the law. Under these circumstances, the necessary expansion of Small Enterprise will be slow and in fact probably would not occur. In this case, the Government will have two basic choices: either it can abort the structural change process or it can further liberalize the micro-enterprise sector in order to permit it to generate jobs for redundant state workers. In order to establish an “enabling environment” for micro-enterprise, here are some of the types of policy modification that would be necessary:

  1. Modify the tax regime: Eliminate the tax on hiring workers and permit all costs to be deductible from gross revenues for calculating taxable income;
  2. Broaden of permitted activities, including professional and high-tech activities;
  3. Relax vexatious regulations;
  4. Liberalize hiring restrictions;
  5. Establish microcredit institutions (international assistance is available for this)
  6. Improve access to wholesale input purchase – not done yet;
  7. Legalize “intermediaries” (permitting specialization between producers and venders)
  8. Permit Advertising
  9. Establish a “Ministry for Small Enterprise”!!!

 

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“The Economist” on Cuba’s Housing Market

Swap shop: Where a beach-front house can be (almost) yours for a snip

Feb 3rd 2011 | HAVANA

CUBA’S government likes to crow that over 85% of Cubans own their homes. The claim is technically correct. However, there is a catch: holding title to a property does not give you the right to sell it. The only legal way to move in Cuba is by swapping residences—a slow, bureaucratic and often corrupt process known as the permuta (“exchange”), which requires finding two roughly similar properties and getting state approval. To avoid this hassle, some Cubans prefer to marry the owner of a property, transfer the deed, and divorce.

Because there is no incentive to build new homes, Cuba suffers from a dire housing shortage. Many buildings have been repeatedly subdivided. In some families three generations share one bedroom.

After replacing his brother as president in 2008, Raúl Castro has legalised and taxed bits of Cuba’s informal economy, like pirated DVDs and used furniture. Now he has turned to housing. In 2010 the government relaxed rules on forming building companies and buying building materials. It is preparing to let foreigners buy property in tourist zones. And in April the Communist Party Congress is expected to allow Cubans to “buy, sell, or swap” their homes.

Havana’s Housing Market, circa 2002: Arranging “Permutas” on Paseo del Prado, Photo by Arch Ritter

The effect of these measures may be limited. Most permutas already involve money under the table—ranging from a few thousand dollars to $40,000 for a smart three-bedroom flat. The market will be heavily regulated: officials say they will ban the (as yet undefined) “accumulation” of property. And buyers may be discouraged if they have to prove that their money did not come from the vast black market.

Even so, allowing selling is risky. It will raise tax revenues, but could belie Cuba’s myth of material equality. If too many luxury homes pop up, the poor may further doubt that America’s trade embargo is the cause of their misery. Already a cluster of sea-front houses west of Havana, acquired via permuta by pop stars and foreigners, is getting its first lick of paint in decades.

The market will probably benefit from Barack Obama’s loosening of the embargo. He has relaxed most limits on visits and remittances, which should increase demand for Cuban homes and the amount buyers can pay. Some Cuban-Americans are even considering returning for retirement. “Now is the time to move”, says Ada Fuentes, who recently came back to Havana after 49 years in New Jersey. “If you have money, life’s good here”.

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