• The objective of this Blog is to facilitate access to research resources and analyses from all relevant and useful sources, mainly on the economy of Cuba. It includes analyses and observations of the author, Arch Ritter, as well as hyper-links, abstracts, summaries, and commentaries relating to other research works from academic, governmental, media, non-governmental organizations and international institutions.
    Commentary, critique and discussion on any of the postings is most welcome.
    This Blog on The Cuban Economy is dedicated to Cuba's Generation "A". Although inspired by Yoani Sánchez' original blog "Generation Y" this is not dedicated to those with names starting with the letter "A". Instead, it draws from Douglas Coupland's novel Generation A which begins with a quotation from Kurt Vonnegut at a University Commencement:
    "... I hereby declare you Generation A, as much as the beginning of a series of astounding triumphs and failures as Adam and Eve were so long ago."

Mark Frank: “Cuba lifts ban on trade in property”

From the Financial Post, November 3, 2011

Havana’s Pre-Reform Housing Market Place on Paseo del Prado (for “Permutas” Plus…  ); Photo by Arch Ritter, 2009

Cuba has formally lifted a five-decade ban on residents buying and selling property as the communist government of President Raúl Castro makes its most significant move yet to liberalise the island’s Soviet-era economy.

For the first time since the 1959 revolution, Cubans will be able to sell property to other Cuban residents without government approval. The changes, already approved by the National Assembly in August but now formalised, come into effect on November 10.

The easing of restrictions on property ownership is likely to reshape Cuban cities, spur real estate development and speed renovation of Cuba’s picturesque but dilapidated housing stock. It is also expected to reconfigure Cuban conceptions of class as some homeowners cash in their properties and areas of Havana are gentrified.

“I hope the new law gets rid of so much paperwork, bureaucracy and other problems that simply lead to corruption. If you can now move without months and years of effort and paying people off, we will be content,” said Maritza, a 35-year-old food service worker.

Previously, any Cuban who wanted to swap their home for another had to penetrate thick layers of bureaucracy. Houses were also confiscated by the state if a Cuban moved abroad. Now by contrast, the new rules state that the purchase, sale, donation and trading of houses will be recognised even in cases of “divorce, death or permanent departure from the country”.

The measure is the latest and most dramatic signal that the authorities are serious about implementing reforms adopted this year. Last month, the government ended another ban, also dating from 1959, on the sale of cars. State companies have been given more autonomy, state payrolls and subsidies have been trimmed, and retail services liberalised.

Analysts say that home sales could free up capital needed to jump-start small businesses. Cubans living abroad, especially in the United States, who remit some $1bn a year to the island, have proved instrumental in financing and supplying thousands of small businesses since the sector was liberalised last year. They are now expected to invest in housing through their relatives, pumping millions of dollars into the local economy and helping to renovate the crumbling housing stock.

“This change is another example of the failure of ‘big bang’ models to predict the evolution of the Cuban economy,” said Jose Gabilondo, associate professor of law at Florida International University, said. “Changes in the rules of the game are already under way.”

However, the new housing law dashes hopes that the local real estate market might open up to large domestic or foreign investment as it continues to prohibit foreigners from owning property unless they are permanent residents. A special exception is expected in the next few months for golf course and other tourist developments currently under negotiation with various foreign companies.

Every property transaction will require a notary, with payment through a state bank, and both the seller and buyer paying a 4 per cent tax.

Posted in Blog | Tagged , , | Leave a comment

Fidel Castro: The Cowardice of Autocracy

By Arch Ritter

Note: This commentary is more political than economic in character. It is an attempt to get some ideas “off my chest”.

Fidel Castro’s attack on the Moncada Barracks in Santiago in 1953 and his subsequent crossing of the Florida Straits in the Granma to attack the Batista regime with a small armed force certainly appear courageous – though some observers question the personal courage of Castro during these events. But once in power, he quickly moved to suppress all opposition and alternate visions of Cuba’s future in order to minimize or eliminate any risk of rejection, criticism, or challenge to his power and his view of the world. Such a “stacking of the deck” in his own favor and the denial of freedom of expression and assembly to all who disagreed with him does look cowardly.

The Courage Phase: Fidel Castro (far Right) and followers arrested after the attack on the Moncada Barracks,  8/1/53

But what is cowardice and what is courage? In searching the literature via Google and Google Scholar, little analysis turned up for me, with the exception of an old essay by Joe K. Adams entitled “The Neglected Psychology of Cowardice” [Journal of Humanistic Psychology, 1965, 5; 57-69]. Adams begins his analysis with a lament that little had been written prior to 1965 on this topic. The Adams essay is the only reasonable and relevant analysis that I was able to locate, though there may be – and I hope that there would be – a substantial literature that I have not found.

Adams defines courage and cowardice in terms of the consequences that a person expects will follow from a particular course of action. The consequences may be physical, moral or intellectual and Adams (p. 58) defines them as follows:

  1. “Physical courage-cowardice: the relative willingness to risk or undergo anticipated physical pain or injury;
  2. Moral courage-cowardice: the relative willingness to risk or undergo undesired social consequences such as disapproval, contempt, loss of status or power, ostracism…
  3. Intellectual courage-cowardice: the relative willingness to risk or undergo a serious disturbance of one’s cognitive structure.”

On the courage side, one willingly confronts anticipated injury or risk while on the cowardice side, one minimizes expected injury and risk.  How does one minimize risks of personal pain, injury, disapproval, loss of status or power, or “disturbance of cognitive structure”? In Adams words (p. 59)

“….. by rendering harmless those who might bring about (these negative consequences …. ) by destroying them, censoring them, controlling them, or changing them. Destruction, censorship, control or change must itself be brought about with a minimum of risk i.e. in such a way that one’s opponents are unable to fight back. In addition to the possession of a complex and mystifying ideology, methods which are especially useful are secrecy, intrigue, deception, labeling, anonymity, entrapment, monopoly and getting others to do whatever open or fair fighting is necessary.”

This indeed sounds a lot like the Regime of Fidel Castro. However, Adams was not discussing Cuba or Eastern Europe. His case studies focused on the Catholic Church, the Inquisition, John Calvin’s Geneva, and political and academic ideologues (especially psychologists) circa the 1960s.

Why then did Fidel Castro shift from early courage pre-1959 to later cowardice when he found it desirable to deny people’s basic political and civil rights as these are interpreted by the United Nations Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights,  and the International Labour Organization Declaration on Fundamental Principles and Rights at Work? I am not in a position to give a good answer to this question, being neither a psychologist nor a connoisseur of Fidel Castro’s biography. However, perhaps Lord Acton’s maxim is relevant: “Power Corrupts and Absolute Power Corrupts Absolutely.”  Once tasting the fruits of power, Fidel became launched on a spiral, requiring more and more control of people’s lives, more and more adulation and influence. No amount of publicity and adulation ever seemed to be enough towards the end of his reign. The marches along the Malecon with him at the head became frequent and the political rallies occurred every weekend – non-stop mass mobilization to demonstrate loyalty and support for the Commandante.

Where does one see physical, moral and intellectual courage in Cuba at this time? Clearly it is with the dissidents, the Damas en Blanco, the independent journalists and economists, the Bloggers, and the labor or human rights activists who stand up to the autocratic regime – though with still small voice – at great personal risk.

Will President Raul Castro break from the political system established set by his older brother and demonstrate authentic intellectual courage?  If Raul really wanted to establish an independent legacy and an honorable place in the history books, he would return to authentic representative democracy will full practice of political pluralism and independent expression and assembly. Unfortunately such a courageous move though desirable is also improbable.

NOTE: For additional articles on various aspects of Fidel Castro’s presidency, see:

Cuba’s Achievements under the Presidency of Fidel Castro: The Top Ten

Fidel’s Phenomenal Economic Fiascoes: the Top Ten

Fidel’s No-Good Very Bad Day

The “FIDEL” Models Never Worked; Soviet and Venezuelan Subsidization Did

Fidel Castro, circa 2010 or 2011

Posted in Blog, Featured | Tagged , , | 2 Comments

CUBA in the UNDP 2011 Human Development Report

By Arch Ritter, November 3   2011

The 2011 United Nations Development Program (UNDP) Human Development Report (HDR) was just published on November 2.

Cuba is back in the main Human Development Index (HDI) and the statistical tables of the 2011 HDR after a complete absence last year mainly due to its unorthodox measurement of Gross Domestic Product (GDP), a central component of the HDI.  Presumably the UNDP now accepts Cuba’s approach and its HDI is recalculated and is presented for the 1985 to 2011 period.

The 2011 Human Development Report is especially interesting this year focusing on Environment and Equity issues and including statistical measures in both of these areas for all countries of the world for which such data is available. The UNDP HDR is the most reliable and comprehensive “Report Card” on most aspects of human development (though with little attention to the political dimension) for all countries of the world).

The full report is available and can be down-loaded here:  Human Development Report 2011, Sustainability and Equity: A Better Future for All; http://hdr.undp.org/en/reports/global/hdr2011/download/

Cuba’s place in the 2011 Human Development Index is summarized in Table 1. The basic methodology used for the HDI measure is described below in the Appendix.  Cuba’s overall ranking in the world is # 51 for 2011 – the same ranking as in 2009 which used a somewhat different methodology. Its rank in Latin America in 2011 was # 5, up from # 6 in 2009. Interestingly enough, Cuba can be seen in Chart 1, as somewhat of an “outlier” in that its Gross National Income per capita is relatively low while its overall HDI is high.

Source: UNDP Human Development Report, 2011

Chart 1. Cuba’s Human Development Index and Gross National Income per capita in Purchasing Power terms in 2011 in Comparative International perspective.

Source: Calculated from UNDP HDR 2011
Of the three components of the HDI, Cuba did poorly in the Gross National Income measure, placing 23rd in Latin America and 103rd in the world. The Life Expectancy component was strong, though Cuba was behind Costa Rica for this indicator and tied with Chile. The “Mean Years of Schooling” measure at 9.9 years is probably not unreasonable.

The big surprise in the HDI calculation is the second element of the education component. The “Expected Years of Schooling” indicator is an amazing 17.5 years, ahead of all other countries in the world with the exception of Iceland, Ireland, and Australia. This is a curious result and presumably is due to a mechanical calculation based on current enrolment at all levels of education and population of official school age for each level of education. The number for this sub-component accounts for about one-sixth of the weight for the whole HDI measure. This number is high perhaps because of the enrolments at Municipal Universities and the retraining of displaced sugar sector workers that seems to still be continuing. The quality of expected years of education is not considered. As a genuine indicator of human development, this measure is weak because, unlike Life Expectancy and GNI per capita, it measures input and effort more so than output and the result.

The trend of Cuba’s HDI from 1985 to 2011 and is illustrated in Chart 2 in comparison with the long-term HDI trends for the other countries of Latin America and the Caribbean. (The measure for Cuba is the light blue line with that includes the HDI numbers. The other countries of the region are in the darker colours, but unfortunately are unmarked.) The decline of the HDI according to this new UNDP measure after about 1989 is apparent, reflecting the 35% reduction in GDP per person from 1990 to 1993. Reasonably steady improvement then occurred right to 2011, as a result of the improvements in GDP per capita and steady improvements in health and education.

Chart 2. Cuba’s Human Development Index Trend, 1985-2011,  in Comparative Latin American Perspective

Source: Calculated from UNDP HDR 2011

Some of the environmental numbers for Cuba are of interest, though the coverage is incomplete. Some other variants of the HDI, namely the ”Inequality-adjusted HDI” and the “Multi-Dimensional Poverty Index” exclude Cuba, presumably for lack of data.

Appendix: Measurement of the 2011 Human Development Index; (from UNDP HPR 2011) See http://hdr.undp.org/en/statistics/hdi/

The education component of the HDI is now measured by mean of years of schooling for adults aged 25 years and expected years of schooling for children of school entering age. Mean years of schooling is estimated based on educational attainment data from censuses and surveys available in the UNESCO Institute for Statistics database and Barro and Lee (2010) methodology). Expected years of schooling estimates are based on enrolment by age at all levels of education and population of official school age for each level of education. Expected years of schooling is capped at 18 years. The indicators are normalized using a minimum value of zero and maximum values are set to the actual observed maximum value of mean years of schooling from the countries in the time series, 1980–2010, that is 13.1 years estimated for Czech Republic in 2005. Expected years of schooling is maximized by its cap at 18 years. The education index is the geometric mean of two indices.
The life expectancy at birth component of the HDI is calculated using a minimum value of 20 years and maximum value of 83.4 years. This is the observed maximum value of the indicators from the countries in the time series, 1980–2010. Thus, the longevity component for a country where life expectancy birth is 55 years would be 0.552.
For the wealth component, the goalpost for minimum income is $100 (PPP) and the maximum is $107,721 (PPP), both estimated during the same period, 1980-2011.
The decent standard of living component is measured by GNI per capita (PPP$) instead of GDP per capita (PPP$) The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean. Refer to the Human Development Report 2011 Technical notes [388 KB] for more details.


Posted in Blog | Tagged , , , , , | 2 Comments

Cuba legalizes sale, purchase of private property

PAUL HAVEN, Associated Press; Nov. 3, 2011 8:08 AM ET
Original Article available here: Cuba legalizes sale, purchase of private property

HAVANA (AP) — Cuba announced Thursday it will allow real estate to be bought and sold for the first time since the early days of the revolution, the most important reform yet in a series of free-market changes under President Raul Castro.

The law, which takes effect Nov. 10, applies to citizens and permanent residents only, according to a red-letter headline on the front page of Thursday’s Communist Party daily Granma.

The brief article said details of the new law would be published imminently in the government’s Official Gazette. Authorities have said previously that sales will be subject to taxes and the rules will not allow anyone to accumulate great property holdings.

The change follows October’s legalization of buying and selling cars, though with restrictions that still make it hard for ordinary Cubans to buy new vehicles.

Castro has also allowed citizens to go into business for themselves in a number of approved jobs — everything from party clowns to food vendors to accountants — and has pledged to streamline the state-dominated economy by eliminating half a million government workers.

Cuba’s government employs over 80 percent of the workers in the island’s command economy, paying wages of just $20 a month in return for free education and health care, and nearly free housing, transportation and basic foods. Castro has said repeatedly that the system is not working since taking over from his brother Fidel in 2008, but he has vowed that Cuba will remain a Socialist state.

Cubans have long bemoaned the ban on property sales, which took effect in stages over the first years after Fidel Castro came to power in 1959. In an effort to fight absentee ownership by wealthy landlords, Fidel enacted a reform that gave title to whomever lived in a home. Most who left the island forfeited their properties to the state.

Since no property market was allowed, the rules have meant that for decades Cubans could only exchange property through complicated barter arrangements, or through even murkier black-market deals where thousands of dollars change hands under the table, with no legal recourse if transactions go bad.

Some Cubans enter into sham marriages to make deed transfers easier. Others make deals to move into homes ostensibly to care for an elderly person living there, only to inherit the property when the person dies.

The island’s crumbling housing stock has meant that many are forced to live in overcrowded apartments with multiple generations crammed into a few rooms. Even divorce hasn’t necessarily meant separation in Cuba, where estranged couples are often forced to live together for years while they work out alternative housing.

The new law will eliminate a state agency that regulated the exchange-by-barter of homes, meaning that from now on sales will only need the seal of a notary, according to Granma.

The government has also dropped hints in recent months about the new property law, saying it will allow family members to inherit homes even if they are not living in the property.

Cubans who can afford it will be allowed to own one home in the city and one in the countryside.

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

Larry Press on “The Past, Present and Future of the Internet in Cuba”

At the dawn of the Internet, Cuba led the Caribbean in computer networking and was well positioned to continue to lead.  But the Cuban Internet stagnated due to the collapse of the Soviet Union, the US embargo, and the “dictator’s dilemma” — a desire to enjoy the benefits of connectivity without its political and cultural risks.

Today, Cuban infrastructure, skills, and application sophistication are behind the rest of the Caribbean and most of the world.  The Cuban Internet is like their old cars — Cuba is stuck at Web 1.0.

What of the outlook for the future?  Here we have questions and predictions, but few certain answers.  The ALBA-1 undersea cable connecting Cuba and Venezuela has been installed and will begin service in the fall of 2011.[1][2]  The cable will dramatically increase the speed of Cuban international connectivity and decrease its cost.  It seems safe to predict that current users in areas like education, health care, government and tourism will be first to reap the benefit of ALBA-1.New domestic communication infrastructure and human resources will be needed if Cuba is to utilize the cable, but it is not clear how this investment will be financed or how much progress has been made to date.  Given the US trade embargo and Chinese involvement in the ALBA-1 cable, it is likely that the Chinese will also be involved in the upgrading of domestic infrastructure.  U. S. and Cuban leaders are also aging and will doubtless change, but it is uncertain how those changes will impact the Internet.

Larry Press produces a valuable Blog on the Internet in Cuba which is well worth examination. Its address is here: The Internet in Cuba.
Larry Press

Posted in Blog | Tagged , , , | 2 Comments

Cubans Test Official Limits on Criticism

PINAR DEL RIO, Cuba (AP) — Pedro Pablo Oliva was the kind of model citizen the Cuban government wants to show the world.

Oliva proclaimed his loyalty to Fidel Castro’s revolution, his support for its goal of social equality and his gratitude for cultural largesse that nurtured his
development into an internationally celebrated painter and sculptor. He even
did a turn as a delegate in the regional assembly of the western province of
P nar del Rio. But when Oliva criticized harassment of dissidents and suggested there might be room for a party other than the Communists, he was abruptly expelled from the assembly, accused of counterrevolutionary behavior. He found himself with no choice but to shutter his home-based community workshop after the government withdrew its support.

President Raul Castro has called on Cubans to openly air their opinions as his government tries to revive the struggling economy with economic reforms. But officials have sent mixed signals about where it draws the invisible frontier between loyal criticism and what they consider to be dangerous attacks on the system.

A prominent socialist intellectual who made a sharp attack on corruption at high levels found himself booted out of the Communist Party for months. But in another case, officials just seemed to shrug when two state economists
criticized the country’s economic reforms as insufficient.

And while Oliva was punished for denouncing attacks on dissidents, when famous singers Pablo Milanes and Silvio Rodriguez did the same, their comments prompted debate in official media but no reprisals.

“It’s a very difficult question to know where the line is, because the line depends on the moment,” said Arturo Lopez Levy, a Cuban-born economist who lectures at the University of Denver.

Read the Rest of the Article: Cubans Test Official Limits on Criticism

Pablo Milanes: Testing the Limits?

Posted in Blog | Tagged , , | Leave a comment

Liberating Cuba’s Long-Suppressed Resource: Entrepreneurship

By Arch Ritter

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

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

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

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

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

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

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

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

II. Liberating Cuban Entrepreneurship

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

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

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

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

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

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

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

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

Barrio Chino, November 2008, Photo by Arch Ritter


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

Mark Frank: “Cuba to grant much larger plots to farmers”

By Marc Frank;  Wed Oct 19, 2011

HAVANA (Reuters) – Cuba will greatly expand the amount of land granted to private farmers, an agriculture official said on Wednesday, as the Communist-run country struggles to boost productivity in the sector.

Under new regulations expected to be approved this year, productive farmers will be eligible for temporary land grants covering as much as 165 acres (67 hectares), up from the current maximum of 33 acres (13 hectares) mandated in a 2008 decree, said William Hernandez Morales, the top agricultural official in the eastern province of Santiago de Cuba.

“Those persons or lease holders that have really shown they can produce will be able to increase their land to five caballerias,” he said on state-run radio. A caballeria is an old land measure still used in Cuba equivalent to 33 acres (13 hectares).

The state owns more than 70 percent of the arable land on the Caribbean island, of which some 50 percent lies fallow and the remainder produces less than the private sector.

A local agricultural expert said private farmers produce 57 percent of the food on only 24 percent of the land.

President Raul Castro has made increasing food production a top priority since taking over from his brother Fidel Castro in 2008, but with poor results.

In one of his key reforms, the government has turned over 4 million acres (1.6 million hectares) of land to 143,000 farmers and would-be farmers since October 2008, but farmers have complained that the small size of the plots and other restrictions hampered production.

They said bigger plots and a recent measure that makes it easier to employ laborers were positive steps.

“This is special. They should redistribute all the fallow land that’s been overrun with brush,” Roberto Hernandez, a farmer who leased 33 acres in 2009, said in a telephone interview.

“Now the land produces nothing, when it should be producing root vegetables, beans, rice or what have you,” he added.

Central Camaguey farmer Jorge Echemendia agreed.

“This is what they have to do without waiting any longer. I don’t know how they do it, but when the state gives the land to the people they manage to clean it up, even if with their fingernails, and put it into production.”

Castro has also decentralized decision-making, increased prices paid for produce, opened stores where secondary farm supplies such as clothing and tools are sold and promised farmers more freedom to grow and sell their crops.

Agriculture output increased 6.1 percent through June, compared with the same period in 2010, a year that saw a 2.5 percent decline despite the reforms.

Food production remains below 2005 levels and food prices at farmers markets have increased 7.8 percent this year, according to the government. (Editing by Jeff Franks and Mohammad Zargham)

Posted in Blog | Tagged , , | Leave a comment

The “Home Hardware” Cooperative Model and its Relevance for Cuba

By Arch Ritter

As Cuba moves towards a mix of economic institutions with a greater role for the market mechanism as a means of social control over economic activity as well as for private ownership, various forms of co-operative organization have some appeal. Among the many forms of cooperative enterprise that exist and could be considered by Cuba, the Home Hardware variety may have a useful role to play. Already some academic analysts in Cuba are exploring the varieties of cooperative and their relevance for Cuba. ( See New Publication from Cuba: Cooperativas y Socialismo: Una Mirada DesdeCuba).

The Home Hardware Cooperative Model

Home Hardware, is a dealer-owned cooperative, in which about 1000 individual hardware store-owners also own the larger enterprise.  Membership in the cooperative permits the store owners to obtain major economies of scale in terms of purchasing and shared buying power, advertising, comprehensive inventory management and product delivery, and store management techniques. The cooperative has permitted small owner-operated hardware stores to remain viable in small towns and urban neighborhoods. It has permitted them to survive and thrive in the face of the competition from the massive “Big Box” hardware stores such as Rona (in Canada), Home Depot,  Lowe’s Companies Inc., or even Wal-Mart.

Original Home Hardware Store, now “Home Furniture”, St. Jacobs Ontario

The establishment of the Home Hardware co-operative was spear-headed by Walter Hachborn starting at the Hollinger Hardware store in the small town of St. Jacobs Ontario in 1938, working as a stock boy for $8 per week. When Gordon Hollinger died in 1948, Walter took over many of his responsibilities, and purchased the store in partnership with Henry Sittler and Arthur Zilliax in 1950. Hachborn then undertook the difficult task of persuading his fellow retailers to join forces in the Home Hardware’s cooperative – a task requiring diplomacy and determination. (Hachborn, who – full disclosure –  is my Father’s cousin, was awarded “The Order of Canada” as well as the “Queen’s Golden Jubilee Medal” in tribute to his business achievements and community service.)

Relevance for Cuba – and Any Country

The Big Box chains exist because of their economic advantages, namely economies of scale in purchasing, marketing and advertising, and management systems plus bargaining power in their relationship with their workers. However there are also a variety of major disadvantages of the Wal-Mart type of Big Box model of retailing or of the “Starbucks” model of service provision.  Among these are:

1.      Major concentrations of income and wealth in the hands of the few owners of the chains. (The Walton family members have estimated assets of $US 92 billion making then the wealthiest family in the world. )

2.      Damage to local communities and neighborhoods as commercial live gets sucked out of them to the sites of the Big Box stores.

3.      Environmental costs as long distance driving to the big stores replaces closer access to community stores.

4.      Exclusion of smaller scale local sources of products in favor of massive low-cost purchases for all their stores from single sources – usually from China, thereby helping to kill off local producers.

5.      Unpleasant shopping experience, (e.g. wandering around large spaces looking for a particular item with no assistance or guidance to be found.)

Already Cuba has a number of state-owned chains of stores,restaurants and hotels such as Tiendas Universo (CUBANACAN S.A.), Tiendas Panamericanas (CIMEX S.A.), Tiendas Caracol (HORIZONTES  Hoteles S.A.), Tiendas y Supermercados de la Sociedad Meridiano S.A. (CUBALSE Corporation; closed in 2009), Tiendas TRD Caribe (GAVIOTA S.A. owned by the militayr), and Tiendas de Habaguanex. If these were to be privatized under concentrated ownership, some of the problems of the Wal-Mart or Starbucks types of conglomerate would be generated or continued.

Tienda Cimex

In the years ahead, it is likely that Cuba will continue to move towards greater private ownership in many areas. If a future government wishes to avoid some of the disadvantages of the Mammoth Enterprise Chain syndrome, it could consider providing encouragement to Cuban-owned cooperative networks or independent enterprises in various activities in retailing and service provision. Possible areas where such a form of organization could be useful might include hardware stores (of course), food stores, bars, coffee shops, variety stores, barber shops, estheticians services and clothing stores, among others.

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

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

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

Globe and Mail, Toronto, October 18, 2011

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

Original Article Here: Small acts of free enterprise….

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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