Says the head of a Cuban Entrepreneurship Network
By Rachel D. Rojas (Progreso Semanal)
HAVANA TIMES – During the coronavirus pandemic numerous enterprises and small private businesses had to close in Cuba, for financial and other reasons. Some were able to reinvent themselves during the crisis. [No government assistance was available whatsoever.]
The number of “self-employed workers” who lost their jobs increased during the months of stricter quarantine in the country. Some businesses are just beginning to come back. But in a scenario with a greater scarcity of goods and where the purchasing power of the majority has deteriorated. This has led many to take different paths. The same goes for their employees.
Professor Ileana Díaz, head of the Entrepreneurship Network of the University of Havana, comments on her findings. She says there exists a difference between those individuals with a good idea and who are passionate about it where it becomes a life project, compared to those who perform more primary activities motivated solely by subsistence. Those who survive crises are usually the first. However, she explains, the mortality rate in this area is generally high.
“As a country, we should try to ensure that [primary activities] are minimal, and that most business projects can be robust, with strong growth and dynamics, at different scales,” she says. All this considering that these very primary activities are also necessary and should not be assumed by the state. Although, precisely because of their vulnerability, they should be more protected. This in the face of economic disasters like has existed during the current pandemic.
According to the professor, one of the main obstacles to differentiate employees from employers, large from small, those who should have different types of tax structures, is precisely that the legal norm that protects them is the same for everybody. Although its implementation was announced, the legal existence of micro, small and medium-sized enterprises (MPYMES) in Cuba has not yet been formally recognized.
Professor Díaz also invokes people immersed in informal work, which, according to official estimates, must be around a million. “In Latin America, there are policies that are directed towards formalizing these people. Some don’t do it because they don’t have financing, because it is expensive, because they don’t pay taxes. Others because there are no higher expectations.
So what is sought is to encourage them, either with tax exceptions for certain periods, or by paying lower taxes. Because the idea is that they start family businesses, even if it is a micro company, which generally have other incentives,” she explains.
Informality, Díaz adds, is a more recurrent phenomenon in underdeveloped countries. “There is less of this in European countries. That’s where I think we should also look for successful benchmarks on entrepreneurship and small businesses. The idea being not to make mistakes that others have already made.”
There are many well-educated and capable people in Cuba, she says. “Many have emigrated, but others have opted to stay, for whatever reason, for the moment.” That also counts when setting related policies. As well as the fact of whether Cuban emigrants will be able to invest or not in the near future in these MSMEs. This is something currently being discussed, according to Díaz. It has been a repeated topic for years in the meetings and dialogues with the Cuban emigrant community. [Instead of investment, thus far the government prefers emigrants sending remittances. Much of those dollars end up in state coffers through its monopoly of retail stores.]
Private sector: Complementary or a remnant?
The evidence is overwhelming: the pandemic has swept everywhere, in most economic sectors, in any form of management. In the case of Cuba, these effects only add to the crisis that the country was already facing. All this, explains Díaz, makes even more clear the feeling of urgency for reforms.
“The Communist Party and the new constitution state that small and medium-sized companies could be constituted. There is also the strategy of making self-employment more flexible and of recognizing these MSMEs. I think they are working on that. However, it is a long and slow decision-making process, at various levels,” she insists.
Diaz adds that there is a problem that will be difficult to solve in the short term. “If the government maintains that the state must dominate everything, what space will the cooperative and private sectors have? You have to start with these definitions, things that are not in the strategy. What place do the socialist state enterprises have to occupy, being the central axis of the country’s economy? This is something yet to be defined.”
“For example, ownership of the land or the mines belongs to the state, but does everything have to be exploited by it? But this has not been done. The participation of the state is still understood as the one that manages, not just the property owner. It is a situation where what is left to the rest of the forms of management has not been defined.” Until these issues are resolved, there will not be, for example, a list of vetoed activities, as announced in August.
The State sector and autonomy
To analyze the space and role of the private sector, it is necessary to analyze that of the state sector. That’s if a comprehensive analysis of all economic actors in the country is sought. In the case of the state-owned businesses, several measures have been stipulated or policies have been enunciated. However, in a very disperse way in their implementation and dissemination. This makes it difficult to examine what has really changed within their economic dynamics.To know what has actually been unlocked and what has not.
“It is impressive, because every other day something changes. For example, the 28 measures that have a legal standard in Resolution 115 of the Ministry of Economy and Planning. Yes, it allows the state company a cash flow, especially to the one that exports. Or those that substitute imports, or are linked with one that exports.” But also in the nineties there was something similar, an emerging sector and a traditional one, notes the professor.
There is another set of 15 rules Díaz says are related to employees. “However, I don’t see why there must be an entity that tells companies how many average wages it can pay. Or telling them what amount to pay from the profits. They are told to define that amount in advance, and it must be approved by another institution. So, what’s the story?
Fragmented solutions won’t be enough
“There is like a morass in the measures as a whole,” she says. “The worst thing is they are trying to solve a structural issue through fragmented measures. Those issues correspond to the science of business.”
In general, Professor Díaz describes next year as a hopeful period for the private sector on the Island, since the creation of MSMEs must be recognized and implemented. Moreover the smaller list of activities not permitted must be completed, leaving a greater number of possibilities for new businesses.
“Beyond the political will that may exist, there is also an urgency. Monetary ordering is going to lead to the obligatory restructuring of the State company,” she says. And in turn, many workers will need alternatives to reintegrate into the labor market. This is something to which the private sector could contribute when the right conditions are created.
Professor Ileana Díaz adds: “What I am trying to convey is that there is no systemic view. And here we are talking about the business system of the country: state, private, cooperative or mixed. The policies must be based on what you want to achieve: growth, exports, innovation. All this implies a comprehensive outlook. You cannot look through watertight compartments and in fragments to fix something that is systemic.”