It’s a Long and Winding Road for Cuba’s Private Sector

The country needs institutionality that encourages, supports and creates conditions to promote all forms of property.

By Ileana Diaz Fernandez (IPS-Cuba)

We can’t see any real intention to convert private ventures into small and medium-sized enterprises. Photo: Jorge Luis Banos_IPS

HAVANA TIMES – Legal regulations that came into effect on December 7, 2018, have put the brakes on Cuba’s private sector instead of contributing to its progress, warns a study by University of Havana’s Entrepreneurship and Innovation Network, made up of professors from different departments and centers within this institution, as well as some external organizations.

The network analyzed these regulations from a legal viewpoint, in the light of different arguments that lay the foundations for accepting this kind of private enterprise and the Conceptualization of Cuba’s Socio-Economic model and the Cuban Constitution, which legalize private property.

Its study concludes that regulations approved by the Council of Ministers were written in reverse: excessive documents (29) and processes that represent obstacles in the application process for licenses, cracking down on violations, excessive inspections, the definition of twenty-two oversight agencies for the private sector (with specific departments to deal with them), the new requirement of a bank account with two months worth of taxes as credit in this account, needing to pay payroll taxes from the very first employee, etc.

So where is the government’s streamlining for all of this? Rationalization ended. However, payroll taxes in the private sector were always counter-productive to encourage people to take on workers in the public sector.

When will we separate and State and business? Now, every leading agency has to have a department to deal with the private sector. Are these not business functions even though they aren’t recognized as such or is it just control to have control?

What lessons can we learn from international practice? In Latin America, there is normally an organization which regulates, encourages, promotes and supports small and medium-sized enterprises, beyond the different government bodies who dictate comprehensive public policies for every kind of business.

How can we expect to convert private ventures into small and medium-sized enterprises with these kinds of measures? We can’t see any real intention.

We cheered when two days before legal regulations were enacted in December, three of the least accepted measures were scrapped and then later in February, new actions were announced (although the legal regulations haven’t come into effect yet). How great! But, this just goes to prove that they don’t know what they want to do with the private sector, in spite of what the two most important documents abovementioned in the country stipulate. Now, there is talk about making private sector work more flexible, this will mean new legal regulations.

Cuba’s economic conditions aren’t the best right now, the private sector has shown growth. In December 2018, there were 580,828 people, over 60% of whom were technically unemployed, and together they equaled a third of employees at state-run businesses.

Within this group, the most lucrative brought in 9.3% of the GDP in revenue in 2016 and 12% in 2017 (Monreal, August 2018). The government admits that expanding the private sector, especially self-employment, has resulted in an increase in tax revenue from 1-8% between 2013 and 2018; the private sector contributed 11% of budget revenues in 2017.

Will such a dynamic sector like this one be of interest to the current US government and the Cuban-Americans in power? Measures imposed by the US indicate that they have no interest in it growing, as it contributes towards the country they want to sink.

As a result, logic indicates that all Cubans need to work together, under any form of property, demanding that the economy be decentralized so that state-led businesses can run themselves and are freely connected among the different forms of property which would lead to society’s efficiency and satisfaction. The economy is a whole, a system, it can’t carry on being managed in a fragmented and sectorial way.

The history of Cuba’s private sector

In 1976, self-employment was approved by law as part of the Economic Management and Planning System. According to the 1981 census, it represented 1.6% of the active population and in 1985, there were 39,000. However, the “correction process” brought it to a standstill.

Then, in the ‘90s, the post-Soviet crisis made this kind of employment flourish again and in 1995, the private sector grew to up to 138,000, reaching its peak in 1999 with 157,000 self-employed. Then, what happened? A slow but steady reduction process, dropping by 2007 to a similar level to that of 1995.

In 2010, self-employment picked up again, experiencing over 70% growth in 2011. It hasn’t stopped growing in the past nine years. However, it only grew by 2% in 2018, falling once again. A series of legal regulations representing control, control and more controls came when we were expecting more incentives.

In the analysis of every one of the stages it has undergone, we can see similarities and differences, but the most important has been the poor role that this kind of work has always been given in the economy. This has only included low value-added activities, working out of homes (or by renting spaces out from the State), discretion on behalf of the People’s Party when deciding different points (granting and revoking licenses, fines, deciding tax rates and even prices), zero or poor financing mechanisms, taxes without grounds (such as the payroll tax), etc.

If it has been repeated on many occasions that this kind of work is complimentary to the public sector, that doesn’t mean to say that it is marginal. It just means that we need to estabilish institutionality that encourages, supports and creates conditions to promote a productive framework without asymmetries between any kind of property.

It has been a long path and it is still winding, as those in power don’t seem to understand that they need to add and multiply agents of growth to reach national forecasts.

10 thoughts on “It’s a Long and Winding Road for Cuba’s Private Sector

  • August 15, 2019 at 9:50 pm
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    The Communist Party of Cuba (PCC) was established by Raul and Fidel Castro aided by Dr. Ernesto ‘Che’ Guevara de La Serna Lynch and with the advice and guidance of Colonel Nickolai S. Leonov of the KGB who was Moscow’s ‘Man in Havana’. It is based upon Joseph V. Stalin’s interpretation of Marxism/Leninism. Under that interpretation, it is essential to create a proletarian mass and the PCC has spent sixty years pursuing that objective. ‘Che’ Guevara wrote:

    “I have come to communism because of daddy Stalin and nobody must come and tell me that I mustn’t read Stalin. And because I’m not very bright, and a hard-headed person, I keep on reading him.”

    Although Guevara in his arrogance, believed that he had the right to read that which he chose, he and the Castros denied Cubans that right by applying severe censorship, for example denying them the right to read Boris Pasternak and his book Dr, Zhivago, generally recognized as a 20th century masterpiece.
    Raul Castro as dictator rigidly adheres to Stalinist principles, and the PCC fear that development of private sector businesses will lead to the creation of a bourgeois class within Cuba and a fear that dissidence may in consequence increase, leading to an even greater fear that a Cuban form of ‘perestroika’ could arise. That in turn emphasizes the need for repression as individual initiative is anathema to Stalinist type communists. Stalin wrote for example:

    ” Ideas are far more powerful than guns. We don’t let our people have guns. Why should we let them have ideas.”

    and:

    “People who cast the votes decide nothing. The people who count the votes decide everything.”

    Guevara later grew more in favour of Mao Zedong’s views than those of Stalin, but the Castro brothers remained faithful to Stalin. One consequence was that Guevara resigned his Cuban citizenship and left Cuba for good to pursue his beliefs initially in the Congo – which he described as “a faiure”, then Prague and finally under disguise and with a false name and occupation- but funded by the Castros, in Bolivia.
    There is little hope that anything will change for those Cubans who as individuals seek to establish businesses, as for the communist dictatorship retention of total power and control is far more important than a healthy economy.

    Reply
  • August 16, 2019 at 9:11 pm
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    Stalin was already dead when the Castros took over in Cuba, so how can you say they “remained faithful” to Stalin. You need to get your history straight. Also there were no “mass executions “ in Cuba like there were in Stalin’s Russia. There were some executions of Batista’s henchmen after the revolution, but their numbers were in the hundreds, while Stalin murdered millions. How can any rational person even compare the Castros with Stalin or Hitler?

    Reply
    • August 17, 2019 at 12:52 am
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      Curt, your comment is irrational in the extreme. If as you are suggesting, the Castros and the PCC could not remain faithful to Stalinist principles, because he was dead (March 1953 just one month prior to Raul Castro’s first visit to the USSR in April 1953), then it would be equally impossible for the PCC and others like for example yourself, to remain faithful to Marx and Lenin, both of whom have been dead for far longer.
      You in your enthusiasm to conveniently avoid fact, state that “executions of Batista’s henchmen after the revolution…….were in their hundreds,” that is in contradiction of Cuban archival materials documenting 3,615 executions by firing squad following Fidel Castro taking power and the additional 1,253 extra judicial killings attributed to the regime.
      You may be confused by thinking only of the 78 people executed by Raul Castro in one day, on January 12, 1959 at Santiago without trial, plus the 359 executed at La Cabana in Havana at the whim of Guevara between January and June 1959. Or perhaps you were mislead by Fidel Castro saying on January 21, 1959:

      “Besides the number of henchmen (same word that you by chance used) we are going to execute will not be more than four hundred.”

      As usual with Fidel, he lied.
      I agree that Stalin killed millions in his purges, but fortunately for the Cubans, over two million managed to flee – an opportunity not open to the Russian victims.
      But as usual with the defenders of Castro dictatorship, you try to explain that it was maybe even worse elsewhere. So I guess that excuses Stalin, in that Mao Zedong killed even more than him. Both managed to exceed even the numbers killed by Hitler, so does that excuse him?
      ‘Che’ Guevara said in justification for the Cuban slaughter:

      “To send men to the firing squad, judicial proof is unnecessary. These procedures are an archaic bourgeois detail.”

      That is all factual history Curt. Even you cannot further distort it.
      No doubt you would fault Batista for not executing the Castros as Cuban citizens for their raid upon the Moncado Barracks of July 26, 1953 when some Cuban military were killed, but instead imprisoning them following trial – you will recall it was a proper trial with Fidel Castro being provided with the opportunity to defend himself – and following relatively brief imprisonment being released. Certainly the Castros cannot be excused for failing to display similar levels of mercy.
      Do not in response, suggest that I am supporting the dictatorship of Batista – whom I have repeatedly condemned.

      Reply
      • August 17, 2019 at 8:13 pm
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        Carlyle, the Cuban archival statistics you are referring to are figures that have been manipulated by the hardline right wing exile fanatics in Miami. There is absolutely no proof or documentation of those numbers. There was much violence in Cuba following the revolution and most of the casualties were people killed in the street by police. Most of the deaths of people weren’t ordered by the Castros. How could the Castros have possibly known over 4800 people personally and ordered their deaths. Most of the people who left Cuba fled because of the political unrest, not because they were potential victims. They also took advantage of the opportunity to leave when Castro opened seaports on the northern coast in 1965 for people to leave. The Cuba Adjustment Act introduced by Peresident Johnson also helped. Hell, who wouldn’t take up the opportunity to live in the USA.

        Reply
        • August 18, 2019 at 1:18 pm
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          You Gregory have just propagated the myth that all the Cuban communist dictatorship woes are a consequence of the US Cuban Democracy Act and the introduction of the US embargo.
          The myth being that if it were not for the embargo, Cuba would be a thriving non-democratic socialist paradise benignly governed by kindly progressive compassionate considerate comrades representative of the Cuban people.
          Whereas in reality, it is actually ruled by dedicated communists pursuing the principles laid down by Joseph Stalin’s interpretation of the 19th century philosophies of Marx and Lenin. The consequences are denial of individual rights of thought and action, denial of freedom of expression, denial of freedom of the media and repression.
          It is somewhat cynical to refer to: “the Cuban private economy has room for growth”, when the actions of the PCC have been continually directed towards preventing the growth of private enterprise businesses in order to ensure that the regime retains control of the means of production and distribution.
          You follow that by saying that were it not for the US embargo: “Cuba would prosper to include growth for every business and public venture. That statement in itself, denies communist principles and the Constitution of Cuba. Private businesses are not denied growth by the embargo, but by the Castro regime itself.
          There is no evidence to support your view that: “cooperatives create more growth and equal distribution of wealth than private ownership of business.” That theory was pursued in Scotland during the period stretching from 1910 – 1960, when cooperative societies were numerous, and when some actually paid dividends to members – my own grandparents among them. But the competition of private enterprise inexorably overtook them. Thus reflecting that in reality, socialism is but wishful thinking.

          Reply
        • August 18, 2019 at 1:40 pm
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          Do please explain Curt how it was that “the hardline right wing fanatics in Miami” actually managed to penetrate and manipulate the Castro regime’s documented archives? I had previously thought that you believed Castro regime figures, but obviously if they don’t agree with your conceptions they are described as being manipulated. Do MININT figures count for naught? I note you take care to avoid mentioning the executions by Guevara and Raul Castro,
          As for your question posed in the final sentence, I for one wouldn’t take up the opportunity to live in the US. The reasons are more than numerous. I deplore the racism which exceeds that of Cuba, I deplore the two-party financially manipulated political system, i think that the US Constitution requires major revision, and as one with deep concerns regarding Cuba in particular, in the first lines of the chapter headed: “The USA” in ‘Cuba Lifting The Veil’, I wrote:
          “US policies towards the Latin American countries have been a succession of political blunders of magnitude since the adoption of the Monroe Doctrine in 1823.”
          So regarding the thought of living in the US, count me out Curt!

          Reply
  • August 17, 2019 at 1:39 pm
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    It seems to me that businesses should be required to pay taxes in order to compensate for the governments universal support of healthcare, education and infrastructure. All of these are critical to the success of business and society. Private business for profit of the owner has always been an impediment to the growth of business and employee empowerment.
    The periods of private business growth correlate to periods of US government policy toward Cuba. When there has been a lessening of aggression from the US the Cuban private economy has had room for growth, when US governments have stepped up aggression and capitalist propaganda to overthrow the government the private sector, for political and economic reasons has contracted. Imagine if the US just ended the criminal and illegal blockade and intervention programs. Cuba would prosper to include growth for every business and public venture. Also there hasn’t been an analysis of cooperative business ventures as comapred to private ownership. That would be a telling story to the development of Cuba’s economy as cooperatives create more growth and equal distribution of wealth then private ownership of business.

    Reply
    • August 17, 2019 at 8:17 pm
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      Gregory, I couldn’t agree more. When the US steps up aggression towards Cuba, the Cuba government increases the repression. Look what happened to Americans rights after 911, through the Patriot Act and other repressive measures.

      Reply
    • August 18, 2019 at 5:51 pm
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      See response to this misinterpretation of communist principles above.

      Reply
  • August 21, 2019 at 1:12 am
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    Cuba will never prosper under the current oppressive anti-business communist regime without drastic changes.
    And with Maduro’s Venezuela sinking Cuba gets less dirt cheap oil by the day only making matters worse.

    Reply

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