You Can’t Analyze a Systematic Problem in a Fragmented Way

Says the head of a Cuban Entrepreneurship Network

Photo: Progreso Semanal

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.

Photo: Juan Suarez

Necessary distinctions

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?

Photo: Juan Suarez

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.”

Read more from Cuba here on Havana Times.

One thought on “You Can’t Analyze a Systematic Problem in a Fragmented Way

  • “During the corona virus 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.]”

    That opening quoted sentence which Rachel D. Rojas uses in her article has been experienced in most Western countries in this unfortunate pandemic. Many enterprises and small private businesses throughout Canada, to use one country as an example, have had to close their doors for financial reasons.

    But, unlike the last bracketed sentence, the Canadian government has stepped in with a massive fiscal spending to help many enterprises and small businesses to stay afloat and survive financially. The government has increased its annual deficit well into the billions (b, not m) of dollars to provide businesses, the foundation of any successful economy, the financial help needed to overcome monetary losses.

    Yes, we all understand, Cuba is in dire economic and financial trouble even before the pandemic hit and is unable to pour much needed capital into the economy as a legitimate lifesaver. The Professor goes into a long and convoluted discussion about “business projects”, “strong growth and dynamics”, “mortality rates” for business and other information that seems to skirt the most obvious setback for the majority of Cubans and is critical for any economy to function and to prosper and that is, namely, discretionary spending among all Cubans.

    So what if a Cuban business is able to survive and functions. How many ordinary Cubans have the disposable income to purchase whatever that business is selling when the majority of Cubans don’t have enough funds to purchase the necessities of life, like food? And in this persistent pandemic without adequate financial help from the government, Cubans can only walk by a new business that has opened its doors, peek inside, salivate, and walk away because the necessary currency for purchase is not in the pant pocket.

    Professor Ileana Díaz states: “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.” You can certainly look and wish as that Cuban potential purchaser without funds in pocket unable to purchase.

    Don’t know whether European countries are the place for Cuba to be looking for benchmarks on entrepreneurship and businesses when in all European countries those same entrepreneurs and business owners have the fortunate “freedom” to decide how their nascent business is to operate with next to no interference from state governments as long as they pay their taxes and comply with local laws. Not so in Cuba.

    Any Cuban potential entrepreneur needs to satisfy a mountain of state bureaucratic laws – like their potential profits will be severely capped – such that any incentive for business inception is muted at best.

    “There are many well-educated and capable people in Cuba, she says.” I totally agree with Professor Diaz in her Cuban people perception.

    Yes, now if only those same capable Cubans can be allowed to operate businesses and allowed to be self motivated entrepreneurs without stringent, stifling, state control (unlike European countries) this economic experiment will transfer into hiring employees who need to be paid a living wage to be able to purchase what they are producing and maybe then the Professor’s professorial analysis will hopefully come to fruition.

    One can’t analyze a systemic economic problem, fragmented or otherwise, if one of the essential actors in the economy has no money nor means to attain it. You need both state and enterprising population to be on the same page for success

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