Private Enterprise in Cuba: The Rhetoric & Reality Gap

By Amaury Valdivia  (El Toque) 

Bom Apetite Restaurant on the Sea Promenade at 1st and 70th Streets. Photo: Jessica Dominguez

HAVANA TIMES – Some weeks after private micro, small and medium-sized businesses (MSMEs) were formally authorized in Cuba, implementation is still in the project phase. If we bear in mind the legislative and tax amendments this implies, it makes sense that this won’t materialize before the end of 2020.

A few months doesn’t compare to the over 25 years that MSMEs have been kept as a “great” unexplored option. Successive waves of economic reforms undertaken since the early 1990s, saw different groups calling for them.

At a time when the taboo hanging over dollars or foreign investment are disappearing and having reached a point where we were forming ties with US companies, Cubans have been denied the chance to found private business recognized as such.

You don’t have to go back too far in time to find the history of recognizing  MSMEs. On May 7, 2020, Granma newspaper launched an attack against small businesses, considering them a threat to the island’s social system.

Carlos Luque Zayas Bayan, the author, wrote: “Nothing is being said about the sources of investment [for MSMEs…]. It is extremely striking that the reasons for this are only economic, without greater concern for other factors. These include cultural, ideological, political, geopolitical and historic factors, which are interwoven with the national economy.”

Despite being a relative unknown, the Communist Party newspaper assigned him one of the eight pages in that daily edition.

Luque Zayas-Bazan’s article sparked a short-lived but heated debate. It was fired by the fear that he represents a kind of “Leftist opposition” within the State/Party’s nomenclature.  Economist Pedro Monreal believes he was expressing a “concern based on the control of national resources, including citizens.” The establishment of MSMEs “would imply a redistribution of activities that censors consider a ‘loss of power’,” he noted.

Raul Castro’s Call to Action Went Unheeded

The debate about allowing MSMEs has been drawn out. Especially if you bear in mind that the framework for their existence was approved by the Party in April 2016. The “Conceptualization of Cuba’s economic and social model for socialist progress” recognized the validity of “small businesses run mainly by the owner and their family.” Likewise, “private mini, small and medium-sized companies, depending on how much work and employees there are.”

During that same meeting, the Party’s First Secretary, Raul Castro, was even more explicit. He urged people to “call things for what they are and not take refuge in illogical euphemisms to hide reality […]. The rise of self-employment and the authorization of hiring personnel has in reality led to the existence of privately-run micro, small and medium-sized companies, which operate today without due legal status.”

However, little or nothing occurred after the lights were switched off after that plenary session. After four years, it’s hard to believe that the rules of the game would have changed in a less challenging economic time than today’s.  In fact, in the legislative timeline approved by the National Assembly in December 2019, the soonest regulations for MSMEs were expected is April 2022, as part of the new Businesses Law.

An uneasy concession

Soon after the Government announced its “Economic/Social Strategy for stimulating the Economy and tackling the global crisis caused by COVID-19”, economist Julio Carranza shared an article that he had written with Pedro Monreal and Luis Gutierrez Urdaneta in 1996. The article, meant to form part of a series being prepared by the Social Sciences Publishing House, was censored.

“The controversy that arose with the Center for American Studies prevented the article from being published in Cuba,” said Carranza. His idea can be summarized as the following:

“We can’t ignore that calls from abroad to promote small and medium-sized enterprise in Cuba aren’t always based on “technical” observations. They regularly attempt to introduce an agent of change that could become an anti-government element in the future […]. However, those observations shouldn’t lead us to devalue small and medium-sized enterprise as a possible and even necessary option.”

The ideas these academics put forward a quarter of a century ago, might sound familiar to Cubans today. In the section about property management, they defended options such as renting out spaces and work resources, concessions for these or signing management contracts. In terms of the relationship between public and private entities, they deduced that there was no logical reason not to establish them within a regulatory framework that can be audited and taxed.

“Socialism shouldn’t assume itself to be a system of “immaculate” characteristics. Confusing the model of socialist construction with the future you want to reach in the long-term is a limitation when it comes to transforming the present,” the academics highlighted.

A growth period of independent work

Within the scope of the private economy, this policy change had real effects. After analyzing figures provided by Carranza, Gutierrez and Monreal, and seeing a report written for the Brookins Institute written by Cuban economist Omar Everleny Perez Villanueva, it’s possible to reconstruct the sector’s erratic statistical behavior during the temporary window it had between 1989 and 2009.

During this period, the number of private independent workers (cuentapropistas) went up from 25,200 to 208,500 (in late 1995). It then fell to a low of 138,000 in 2007. It wasn’t until the 2010 legal reform that the workforce employed outside of the State’s payroll went back up to numbers in the 1990s. and it led to growth which has meant that by the end of 2019, there were around 620,000 self-employed workers registered with the Tax Office.

Government mistrust

“Extending self-employment was considered a “setback” in terms of property,” the CEA article noted in 1996. Listing the causes of the government’s mistrust, the researchers gave a certain value to “high levels of income […] from the private sector [… which] has become a counter-tendency to the government’s equal wage distribution […] and contributed a politically negative view of self-employment, and it’s admission as a temporary situation at most.”

The difficulty to obtain the US $2-2.5 billion of direct foreign investment, calculated as essential in order to carry on with the annual development plan, forced the government to open up other channels to incorporate hard currency into the national economy. Natural sources for investment would be the emigre community and the budding middle class on the island. However, legal dispositions to enable this still haven’t come into effect. The government was still insisting on taking caution at the beginning of this year.

“There are procedures that are extremely interconnected and a matrix of relationships between different procedures isn’t solved with one blow or a decision,” said president Diaz-Canel in January when asked by the Spanish news agency EFE about the possible application of Chinese/Vietnamese experiences in Cuba.

It took a pandemic for the agreement of the 7th Party Congress (2016) to reach the Council of Minister’s agenda. Therefore, some months between the formal announcement and the first registrations of private companies might not seem like a long time, at least by Cuban standards.

Here’s another article on the Cuban economy: The Cuban Economy Before and After COVID-19


8 thoughts on “Private Enterprise in Cuba: The Rhetoric & Reality Gap

  • September 1, 2020 at 12:30 pm
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    Your preference is quite clear to all readers of HT Nick.

  • August 31, 2020 at 4:31 pm
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    No. Don’t go kissing a frog Mr MacD.
    In case it turns into another leader of the Capitalist World – Prince Donald the Second.
    We’ve got one and we don’t need another.
    Handsome in neither looks nor deeds..

  • August 30, 2020 at 9:40 pm
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    Almost any form of transformation from the ugly communist frog, would be an improvement. But, who would wish to give it a kiss?

  • August 30, 2020 at 1:55 pm
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    All that Cuba needs is for the Magical Capitalist Fairy to come along and wave the Magical Capitalist Wand…..
    The ugly communist frog will then be transformed into a handsome capitalist prince……

  • August 29, 2020 at 3:15 pm
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    How many times does the Stalinist type of communism have to demonstrate that the 19th century theories of Marx/Lenin are just nonsense. Human beings are individuals, not mere pieces of a “mass”. Civilization and progress are derived from individual endeavor. In Cuba that has been stifled and the consequences are there for all to see. But the dogma is avidly pursued by the dogmatic!
    Logic and evidence of incompetence of the system are there for all to behold – but adherence to the gospel of Stalinist/Castro is imposed and El Comandante rests happily under his rock, whilst Cubans strive to exist.

  • August 29, 2020 at 9:49 am
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    Anywhere in the world any successful economy relies heavily on its private micro, small and medium-sized businesses. They are the backbone, the life line that keeps workers employed, government coffers filled from business taxes, and providing budding entrepreneurs and employers the opportunity to expand their enterprises as they see fit.

    Now, is this realistic in a totalitarian state that totally controls what occurs in their economy – I say “their economy” because a totalitarian economy does not belong to the people but to the elites who from on high decide what is beneficial for everyone, particularly business owners in this case.

    Any business owner detests unmitigated interference by way of government intrusion in the private market place. Small business owners in whatever economy they operate fully realize excessive government bureaucracy only hampers entrepreneurs ability to plan, direct and control their enterprise so that it thrives and grows.

    Also business owners play a significant role in formulating political policy so that their businesses are recognized as an important contributors to the political discourse. Business owners support certain politicians who are aligned with their agenda. Business owners lobby governments to ensure their concerns are heard and acted upon. If business owners see that the government in power resists their pleas for policy change they will vociferously voice their opinion and rally their counterparts to change government.

    Can this business friendly atmosphere which unequivocally helps successful business worldwide happen in a totalitarian state? Obviously not when the government in power calls all the state’s shots and those business owners will – must – comply with whatever the government decrees on any specific day/week/month/year. To whom can the business owners go to if they are not satisfied with a particular business policy the government has decreed and impedes their business. Can they form a Small Business Association representing all business owners to voice their opinions and have their legitimate concerns heard and acted upon?

    All totalitarian governments have a complete mistrust of its people, particularly those who want to improve themselves by, for example, starting a small to medium sized business.
    The article poignantly states: “Listing the causes of the government’s mistrust, the researchers gave a certain value to “high levels of income […] from the private sector [… which] has become a counter-tendency to the government’s equal wage distribution. . . .”

    In other words the totalitarian government rather than working harmoniously with private, micro, small and medium-sized businesses has complete “mistrust” to those very establishments that are suppose to be the life line, the eventual back bone, of a successful economy. Moreover, business owners are not to profit from their work – which is counterintuitive to the concept of any business.

    The totalitarian state elites state that high levels of income rightfully earned by the ingenuity and hard work of the entrepreneurial class is inappropriate. So much so, in fact, it counters the government’s policy of equal wage distribution. How are potential Cuban business owners suppose to react to such statements? Rather than working with and fully supporting private business owners, the government from the get go works against private business owners. That says it all.

  • August 29, 2020 at 12:56 am
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    The whole island is Castro’s family property. The master let some of the ppl under his rule to improvise and look for fortune with money usually from exiles ppl trying to help theirs love one but the master always has to let them know that he is who rules the plantation.

  • August 28, 2020 at 11:09 pm
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    Why are there so many syllables in your commentary, it’s not that hard, let the people produce, the exceptional ones will excel! That’s what you want, to excel, to produce more! In the old Soviet Union 1/4 of the crops came off the private gardens, not the huge farms. Private Enterprise is the way to go! Go Cuba!

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