How to Run a Business in Cuba Without Hurting Anyone?

Photo: Yandry Fernández.

By Miguel Alejandro Hayes Martinez (El Toque)

HAVANA TIMES – If anyone decides to buy chicken or pork in Havana after reading this article, they could well spend the entire day going from one place to the next without finding it. Because it isn’t just a question of food being super expensive, but also that it’s only being sold in few places and you have to wait in lines to get them.

However, a significant number of private restaurants in Havana offer quite a few dishes with these meats and national or imported food products. While anyone able to find a bag of powdered milk and buy it is extremely lucky (as this product has become the stuff of legends for some consumers), milkshakes still feature on private restaurants’ menus.

I have plenty of these examples ever since the first time I went to Coppelia’s famous hot dog place (which isn’t inside Coppelia) and they’d run out of Coke sodas for 10 CUP. But you could buy it next door, at a private cafe, for double the price.

But it’s not the restaurants or cafes who are to blame, or at least this isn’t my point.

Everything relates to everything

Over 200 years ago economists suggested that everything is related to producing goods, regardless of whether they are closed or open societies. This idea is more or less clear ever since François Quesnay posed something that is as important as the law of Gravity was to Physics: the people producing food in society produce it for themselves and for those who don’t produce food.

This principle has reappeared throughout the history of Economic thought, passing from Engels and his schemes of simple reproduction and extended reproduction, described in “Das Kapital”, but also in Walras’ general equilibrium theory to a certain extent (as well as his disciples) or in Soviet material-equilibrium systems. The latter isn’t as important in some circles, but this system of material equilibrium was exactly the inspiration behind US economist Wassily Leontief creating the famous input–output analysis and winning a Nobel Prize in Economic Sciences.

Later, a series of models and tools were developed such as the Social Accounting Matrix (SAM) and others, with more complex math and programming, which essentially shows that what one economic sector produces is consumed by different sectors, and that one sector consumes what lots of different sectors produce, and all of this combined. Leading us to the clear idea that any change in supply and demand can always have an impact on the entire economy.

Who’s taking the pork?

Thus, pig farmers are working to ensure their own personal consumption and collective consumption. Between those who don’t produce meat, we have those of us that want meat to consume directly and those who buy it to resell it in a restaurant; that is to say, they purchase it as a supply. As meat supplies fall short, we are all competing to be the ones with the “honor” of buying it.

The winners within this landscape are those who are willing to pay more. The winners are the private restaurants that can pay a better price for the pound (then they transfer this higher purchase cost to the sale price) or they buy in bulk. This is in the seller’s best interests, who wins either way. The rest of us… as you know are the losers. There is no other possible combination, because there isn’t enough for everyone.

Just like if there were 12 seats in a room for 20 people, 8 people will always have to stand, regardless of who sits down. Losers are inevitable in times of shortage. Shortages drive us into a social jungle where there is a kind of law of economic natural selection. There aren’t goodies or baddies (or they aren’t if there are), just circumstances.

When this is the dynamic for a long list of goods (regardless of whether they are nationally produced or imported), like in Cuba today, losers lose a lot more than just pork.

Rearing your own pig or it’s your own fault

An early conclusion is that in a society where almost everything is in shortage, when a private business buys a supply, which is essentially to produce a consumer good, this good is being taken from another citizen.

The shortages crisis is so bad that even when restaurants are able to pay better prices (if that’s at the agro-market, with informal deals at stores or legal informal deals), there are private business owners who have created their own supply source, with their own farms, to ensure their supply and thereby escaping the crisis and the high prices it creates.

Thus, we can deduce that: every time a private business creates or produces its own supplies, it contributes to alleviating the impact of shortages to some extent.

However, there is always the risk that food producers prefer to only sell to those who use their products as a supply (or what they process to add value and then sell for more money).

It’s not hard then to assume you need to look at how a business engages with shortages, to see if it is seeking only economic benefit or to be a socially responsible business.

A socially responsible company in Cuba should include among its priorities the need to offer a service/good without leaving other citizens without consumer goods; that is to say, they don’t contribute to greater shortages for consumers.

A restaurant selling roasted meat doesn’t help to improve the purchasing power of the Cuban peso, if a Cuban citizen can barely take it home. Destroying one offer to create another isn’t the road to improving a society, that is to say, the living conditions of its members. It’s just taking it from one side and giving it to another.

But farms aren’t the solution to everything. Is someone else to blame?

Companies’ social responsibility in response to shortages don’t have general solutions. If these are businesses using staple foods or nationally produced supplies, which pretty much don’t need imported raw materials, they can help to ease the effects of shortages. On the other hand, every company using imported raw materials (from powdered milk to plastic) has no other choice. They are condemned to buy supplies, on the illicit or legal markets, and to leave consumers and state-run companies without consumer goods.

The solution is beginning to be implemented on a large scale with those able to import via state-led entities. They aren’t competing with consumers but are importing for them instead. However, the institutionalism of channels for imports, high commissions, as well as the inefficiency of this method, mean that there are very few producers who can access their raw materials in this way.

This is why it isn’t strange to find a float for a water tank on the illicit market for 15 MLC (the USD magnetic almost equivalent). Where do you imagine the plastic came from to make it? It’s the same plastic that circulates within the domestic market and is, obviously, in shortage. They are forced to take from one side to put it on the other.

This is not another conclusion: when a private business is unable to import its supplies because of the government’s monopoly on foreign trade, it is forced to compete with its fellow citizens for goods that the government imports, or with state-run companies for the raw materials they buy.

If this monopoly didn’t exist and initiatives that prioritize the economic wellbeing of the masses, private businesses would be able to reduce their prices and increase their production.

While the little private imports that come in can alleviate this burden, when it comes to large quantities (of food or plastic, for example), it isn’t enough. Recycling isn’t a viable solution either: what’s being reused doesn’t increase. Reusing products in shortage continues to be the same as shortage. It can resolve local problems, of course, but this article is contemplating the situation on a macro level.

How can you run a business without becoming the bad guy?

It’s not really important that the above is as old as Quesnay, because these ideas are easy to grasp with a bit of common sense. It’s unlikely that people with interests reflected in the administration, as well as policymakers, figure out what I’ve just laid out by reading this article: those managing numbers or resources every day know full well that when there isn’t enough to go around, somebody always ends up missing out.

Changing restrictions on foreign trade wouldn’t be enough as a policy, but it would be a much-needed structural change as a starting point. However, it would have an impact on the economic hegemony that keeps the political elite in power, read here: control and high profits that come from monopoly practices. Thus, we can expect these restrictions to remain in force, and responsible undertakings in terms of shortages are in the hands of private business owners themselves.

Of course, no private business that gets their supplies in an honest way and from the fruits of their labor and management should feel guilty at all for buying consumer goods or raw materials in shortage, just like they shouldn’t also be thinking about closing down their business or changing to an activity that doesn’t put them in this competitive situation, pitting them against their fellow countrymen or state-led companies, because they didn’t create the rules of the game. The monopoly on foreign trade forces them to compete with citizen consumerism and is to blame. Furthermore, if they chose their current activity, it’s because it fits their needs, skills, and passion.

Meanwhile, it would be good for society to understand reality from a perspective of private businesses, and that a select few going up the ladder means that others have to fall lower. Especially so the government can’t sell collective prosperity discourse, which clearly it isn’t. Therefore, and this may be the last conclusion, if those private businesses using consumer goods that can be created from scratch in Cuba take on this production, it would be an exercise of social responsibility to try and tackle shortages.

Read more from Cuba here on Havana Times