Is Privately-Run Business the Magical Answer for Cuba?
By Eileen Sosin Martinez (Progreso Semanal)
HAVANA TIMES — A group of friends walked past the corner on 23rd and G Streets in Havana. Alain stopped and looked at the poor state of what was once the busy Cafe G, the place of so many good memories during their university years, just a few years ago. “Do you realize… Now, if this were privately-run… it would pick itself right up off the ground.”
I’ve heard this phrase several times, which summarizes the undisputed proof of before and after private individuals take over state-run businesses. In many places in the city, state-run establishments have come out of ruin – construction-related or financial – to become dazzling private businesses. And is that a bad thing? No, of course it isn’t.
The bad thing is, or rather, the most worrying thing is Alain’s conclusion where private enterprise works, is efficient – even aesthetically pleasing – and that establishments run by the state, aren’t. A presumed dichotomy which isn’t healthy at all.
Professor and researcher Ricardo Torres explains that the socio-economic structure of the transition of Cuban society towards socialism has been mixed, given the co-existence of different types of property. “It’s supposed that conditions were created so that social and collective typologies would become the most dominant in this process.”
In the Cuban context, these more social channels would be cooperatives and state businesses. Later, it became difficult to understand why you only needed to get a license, which the municipal government is authorized to hand out, so as to open a private business; while a non-agricultural cooperatives need authorization from a minister, or the Council of Ministers itself.
Meanwhile, state-led businesses hardly react to measures implemented so as to make it more flexible and productive. Last year, it was announced that a new Business Law would come into effect in 2017, without us hearing anything else about how this legislative process would come about.
In both cases, the “gradualness” and “experimental” nature of them – which could be positive attributes – become marsh water where very little moves forward or nothing at all. “What is happening today, in my opinion, is that the most dynamic sector isn’t the public sector [as the government had hoped]; even in terms of growth, job creation and incorporating innovative approaches in economic processes,” professor Juan Triana rounds up.
Some experts have mentioned the fact that society is transforming today at two different rates: one slow, which takes place higher up, and implies legal and structural changes; and the other is fast, which we see on the street, where small businesses are found, but also the increase in prices and a greater difference between people and groups. Far from middle-ground, the slow transformation seems too slow, while the fast one also seems too fast.
Around a third of the active working population works in the private sector. “The structure of their interests, of how they see the future, is completely different,” points out Triana, “This completely changes the social and political balance in Cuba.”
A study* among the self-employed in Havana revealed that it was important for them to belong to this group, which satisfies their needs, gives them a better quality of life and economic solvency; both for them and their families.
All of them believed that they would be better off in the future than they are now, but not the rest of the groups surveyed, especially laborers and those dependent on the public sector. “They would have to make a lot of changes (…) Right now, nothing is done in a stable manner and looking towards the future (…) The State is very poorly administrated and anything can happen. (…) I believe that I am at the top of what I can do, due to the country’s situation and the economic shortage; I don’t believe that its path will change,” were some of the opinions which were collected.
In spite of all of the problems that they face, private ventures have managed the unusual achievement in Cuba of producing results. Maybe this is why so many Cubans perceive it to be the launching pad for change. Socialism necessarily implies the socialization of wealth and power. However, in the Cuban reforms process, more collective professions have had less of a margin to display their potential.
“In a context where public businesses reign and are mainly inefficient, wealth isn’t socialized and people aren’t free of alienation, in fact it’s the opposite. What is a business worth if it is public and continues to record losses or grows at a rate which falls short of its potential, doesn’t create well-paid jobs, pollutes the environment and provides poor quality goods and services? These questions should form part of a serious social debate,” Torres points out.
The former minister of Economy, Jose Luis Rodriguez, has insisted on the role that workers play. “This is the key issue, in my opinion. It’s not easy; it can’t be fixed just like that… But, if people don’t feel empowered, that they aren’t directly participating in the decision-making process, we won’t make progress at the rate we want to, because these people don’t feel like they are part of this process, or that they have a responsibility in bringing about change.”
Changes occur because of people. That is to say, it isn’t just about optimizing processes, rationality, investments, statistics… but opinions, knowledge, moods, feelings and life projects also have to be taken into account…
The implementation of the Cuban Communist Party’s Guidelines not only contributes to “updating” our economic model, but also our social relationships, notes psychologist Daybel Panellas. Economists claim that the debate goes further than pure economics.
If the State and the private sector are understood as good and bad – or vice-versa – like the useless monster and the personification of progress; if strengthening one of them means that the other one is undermined, if they seem like complete opposites, and not complementary or interlinked… If these representations become hegemonic, we would have lost our direction.
And as we already know, before following foreign paths, it’s best to pave our own way forward. But we have to keep on moving forward. Raul Castro said so: without hurry but without stopping. That’s to say, without stopping.
——-
* “Reconfiguring social relationships: insights from self-employed workers in the capital” Daybel Panellas Alvarez. In: Perspectives on the Cuban economy, Analysis of the private sector, Caminos Publishing House, Havana, 2015.
Tata Steel is expanding production world wide, just not in the UK. Costs are still cheaper in India, Bangladesh and Vietnam. UK production is devoted to high quality specialty alloys.
There can be a case made for publicly run series in some sectors in your country (UK) or mine (Canada) (i.e. the post office, public education, healthcare) but these organizations exist in an overall system of free enterprise and capitalism.
In Cuba, the situation is very different. They have no free press or publicly accountable government. Corruption and inefficiency will be inevitable.
You’re point on tariffs is a red herring as there were tariffs on items produced in the private sector as well. Look at the disappearance of the manufacturing and clothing sector during the same period. Also tariffs were applied on British goods as well as foreign government subsidies – so it worked both ways. If you look at the whole picture the nationalized companies that were profitable remained profitable remained profitable after privatization, the ones that weren’t due to many factors were either restructured and downsized and became profitable like British Steel (Thatcher wouldn’t have been able to sell it off if it wasn’t) or like British Coal went into further decline even after being decimated under state control. As you say cheaper coal could be imported from outside – however state owned mines in Poland provided some of that. If you wanted to prove that private has the magical touch that public doesn’t then you would expect Tata Steel to be reopening closed plants or opening new ones and reemploying ex-steelworkers. And the same with the coal mines. But that isn’t the case.
With Cuba I agree that too much centralized state control and inertia is a big problem. But the answer isn’t Thatcherism. A lot of areas still haven’t recovered from her legacy.
The Raspberry Pi is a wonderful device, but it does rely upon successful private enterprise and a free market economy to exist. The processor used in the device is manufactured by Broadcom, a US semiconductor design firm. Cypress manufactures several of the other ICs used on the boards. None of the technology would exist without private industry and free enterprise.
The recently announced tablet computer to be manufactured in Cuba is based on Chinese design and to be built in a factory designed and built by Haeir Corporation of China. The tablets will be based on the Celeron Core i3 and Core i5 processors. Celeron is a product line of the Intel Corporation. None of this technology would have existed without private industry and a free market.
Coal mining in Britain peaked in 1913 at 287 million tonnes and has declined since then. In 2014, 13 million tonnes of coal were mined. The reasons for the decline are cheaper imports and a decline in demand. This is not a failure of the free market: it’s how the free market works by setting prices in response to the competing forces of supply and demand.
In a modern liberal democracy such as the US, a publicly held company can operate with some degree of efficiency if the government auditors are diligent and the public is engaged in seeing the public purse well managed.
In a socialist dictatorship like Cuba, neither of those conditions are present. State corporation managers and government auditors are corrupt. The employees pilfer supplies and warehouses because they need to survive. Products are diverted to the black market. Necessary supplies are controlled and delivered based on political considerations, not on the actual needs of production. The people have no political power with which to force the dictatorship to better manage the economy.
That is why Cuban state owned corporations are poorly run and inefficient. The only ideological blindness is among those who refuse to see reality because of their own ideological preferences.
British Steel was privatized in 1988, by the Thatcher gov’t. It is now owned by the Indian steel corporation, Tata Steel. British Rail was privatized in stages from 1994 to 1997. The assets of British Coal were privatized in 1997. All of these firms were monstrously unprofitable at the time they were privatized. They were unprofitable in the face of competition in the global free market.
The period you referred to when these firms were profitable, was while they they operated with national tariffs to prevent cheaper imports. The long term effect of these tariffs pushed up costs and lowered productivity. Eventually, all tariff protected businesses become unprofitable. This was one way in which the socialist policies of the post-war British gov’t reduced the economic health of all sectors of the British economy. It was only when Thatcher pushed the country back toward a free market economy did the economy start to grow again.
The cautious economic reforms introduced by Raul Castro have allowed a small sector of profitable small businesses to exist. There are also large foreign corporations which make a profit exploiting Cuban resources and cheap labour.
But Raul’s reforms were still unable to drive Cuba’s economy forward, nor was the large growth in tourism following Obama’s new Cuba policy. The official Cuban govt reported a contraction of 0.9% in the Cuban economy over the past year. Most likely it was worse than that. Next year will almost certainly be much worse, as the Venezuelan oil subsidies will dry up completely and I don’t imagine President Trump will be as generous as Obama was toward the Cuban dictatorship.
If the Castro regime really wants the Cuban economy to grow, they need to get out of the way and open up more of the economy to free enterprise, not the limited self-employment within the suffocating system of state control which continues today. But as Moses points out, the danger to the regime in a loss of control is what prevents real reforms from being considered.
Thanks Dani,
I think you make very good points there.
As you say, there are other options which do not stick rigidly to public sector/private sector models.
Surely the responsibility of government is to encourage any development which ensures a greater sharing of wealth and opportunity. The grave inequalities both between and within nations reflect badly on the collective human condition.
I guess The Cuban Revolution has tried to aim for alleviating the problem of gross inequality.
It has had some successes and some failures.
But at least it seems to have secured independence as opposed to the phony sovereignty which preceded it.
Krispy Kreme Donuts look like plastic food to me.
Thanks Nick. You raise a lot of interesting questions. You could make a case that the government should keep out of business, but you could also make a case that they should be responsible for creating wealth rather than just skimming tax from private companies and bailing out banks and big industries after private interests have screwed things up. I would also say that there is a difference between owning and running. The state could own majority shares in a company but not necessarily do that much in running it. Finally there are very successful enterprises that don’t fit either category. For example the highly successful Raspberry Pi which is built by a “not for profit” foundation set up to further IT education, or John Lewis/Waitrose set up as an employee’s cooperative. It’s a pity that people like Moses can only invisage a Cuba that is taken over by Starbucks and Krispy Kremes.
Absolutely Dani.
I have had the privelidge of eating very well and for a very good price in state run restuarants in much of Cuba (less so in Havana).
But surely there is room for businessmen to run businesses and for representatives of the people to be responsible for essential services.
This would make reasonable sense to me.
Anyone who suggests the private sector runs everything better than the public sector is simply ideologically blindfolded.
That would be my take.
It has nothing to do with Cuba but it always strikes me as ridiculous the fact that the majority of uk coal lies underground whilst we import coal from all four corners of the globe to fuel our electricity plants.
Why?
The failure of right wing free market ideology.
Can see no other reason???
There is no irony.
It is a straightforward fact.
Cuba has a premier league intelligence service.
Hence Cuba’s existence as a sovereign state.
It is also a straightforward fact that many poorer people in Cuba are alive today due to the Cuban Health System.
They may well not be alive today if this provision was in the private sector and therefore run for the benefit of rich investors rather than for the benifit of the public at large.
Agree totally.
Yes whatever our opinion may be, I believe we should be respectful of the opinions of others who as you said take the time to write in this forum. I find very interesting the diversity of thoughts expressed on Havana Times.
I would disagree that state owned businesses lack the magical touch to be successful. In the UK we have had both systems in place at one time. British Gas and BP were both successful and profitable state owned companies (the initial drilling and discovery of north sea oil was done at the time). British Rail instigated the high speed rail services which cut passenger travel times considerably. British Steel was profitable for much of the time in existence – British Steel was particularly over manned but with huge redundancies being made under Thatcher it became profitable again. My point is that it didn’t take privatisation to make it successful or profitable. British Coal was profitable for most of its existence, even like many other nationalized companies it had to pay an extortionate amount back to the previous owners. It became unprofitable because of cheaper coal from other countries and many of the mines closed. But even more closed when they were privatised. So no real difference.
There were problems with trade unions having a lot of power but little responsibility in some of these state owned companies, but the worst strikes and industrial relations were a thing of the past well before privatisation. Also one could criticize the action of governments both labour and conservative in manipulating prices before elections and over generosity in providing government contracts.
But back to Cuba – I fail to see why conservatives get their knickers in such a twist over this issue. A lot of state owned companies live side by side with private quite happily. You can either go to a state restaurant and the food may be slightly inferior and it will probably be a bit overmanned but cheaper or you can go to private one and the food may be slightly better but more expensive. I could say something similar with state and private taxis. So what?
The Cuban state runs a very efficient intelligence service.
This is why Fidel Castro died of natural causes rather than at the hands of some assasisin funded by the U.S. taxpayer.
I do not suggest for one moment that all Cuba’s state run services are models of efficiency. The sentence you take from my comment neither says nor implies this.
I refer you to the comments up the page from Steve Quinton.
Let businessmen run businesses and let those businesses succeed or fail. Let the state take responsibility for essential services.
The world is littered with examples of essential services going from public sector to private sector and then going drown the drain.
The Cuban health service could be more efficient than it is.
But it could also be a total disaster if it falls into the hands of unscrupulous profiteers.
For example:
I know poor people in Cuba who are still alive thanks to medical operations they simply would not be able to pay for if they lived in certain other countries. Therefore they would be dead now.
I hope this goes some way towards answering your honest question.
Maureen,
I do not generally agree with this gentleman’s viewpoints.
But there are sometimes things Moses Patterson writes that I have some level of agreement with.
However, I 100% agree with you that he could choose a better way of expressing disagreement with the article that Eileen has taken the time to write.
I think his choice of expression sounds a bit Trump-like.
“… If you are suggesting that all state run services would be better off run by private investors, then I would disagree to a large extent…”
Could you please name a few (even one) state run service in Cuba that operates efficiently?
Honest question.
Thanks.
“… I don’t find your post to be creepy…”
Of course not. I wasn’t acting creepy, I posted like a normal grown-up.
I agree Nick that this particular choice of expressions by Moses is not cool!
I don’t find your post to be creepy.
I find it highly amusing.
If you are saying that President Castro’s approach is overly cautious, then I would agree to a certain extent.
If you are suggesting that all state run services would be better off run by private investors, then I would disagree to a large extent.
There are countless examples across the world large scale privatisation programmes proving disastrous.
If you think it’s cool to describe Eileen’s article as ‘intellectual masturbation’, then I would strongly disagree.
It’s not cool at all.
Surely the challenge is to keep the best of the current regime – universal education and healthcare – while allowing the private sector to do what it does best and grow the economy. The issue of wealth distribution will arise as private sector earnings run away from those in the public sector- to be addressed by an effective taxation system?
Embarrassed myself? Says who? You obviously missed my point, I will make it again s-l-o-w-l-y. The Castros overly cautious pace towards improving the economy is unnecessary. They know what works and what doesn’t work from the examples set in other countries. Instead, the goal is not to avoid making mistakes. The Castros are simply hanging on to the last vestiges of their failed dictatorship. Got that?
Nick, repeating Moses’ name over and over and over makes your post kinda creepy.
There are already plenty of private businesses in Cuba. Have been for many years. The Revolutionary regime remains in place.
It is masterful how they can keep stretching out the life of a failed system.
State companies could be run far more efficiently. Accountability and ability to invest their own gains would be needed. What does not work is the central planning model that takes all revenue in and manages all operating capital and investment decisions. This leads to none productive companies being funded the same as productive ones based on none economic decisions. A huge miss allocation of capital. In short state companies would need to be run as if private business whose survival depends on it’s performance in a competitive market.
An interesting article regarding the various paths Cuba can take going forward.
This article is either far too complex or far too objective for the likes of Mr Patterson.
It is too balanced to fit in with the simplistic, good guy/bad guy world view that Mr Patterson seems to enjoy putting forward on these comments pages.
This article is far too nuanced to fit in with the narrow, ideological driven opinions of Mr Patterson.
Therefore Mr Patterson put’s Eileen’s interesting article down as ‘intellectual masturbation’.
How Mr Patterson likes to embarrass himself with his remarks.
With due respect to the writer, what a bunch of intellectual masturbation. There is no need to reinvent the wheel here. Example after example exists around the world of what works and what doesn’t work. The only reason to go slow is to maintain the status quote as long as possible. The Castros don’t want change. Private businesses spell less control. Less control spells the end of the Castro dictatorship.