Private Enterprise in Cuba: The Rhetoric & Reality Gap

By Amaury Valdivia  (El Toque) 

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 7^th 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