Will national private business be resurrected?

By Emilio Morales (Cafe Fuerte)



HAVANA TIMES — It’s been 10 years now since a sudden illness brought Fidel Castro’s rule to a sudden end. Since then, many things have happened in the island’s political, economic and social spheres, which have gone hand in hand with Raul Castro’s leadership.

The country underwent a process of reforms which the new leader, adopting a different method, has tried to implement within our economy in order to produce some structural changes and to lift several bans that had been established ever since Fidel took power, which filled hundreds of thousands of Cubans with optimism.

However, results from the changes implemented by Raul Castro can hardly be seen. There’s no doubt about it, the huge crater of problems and gradual deterioration of the Cuban economic model over the last several decades of Fidel Castro’s rule, haven’t been resolved by his successor’s management and reform plan, favored by the warming of diplomatic relations with the US, something which his predecessor never did during his long stay in power, even when Cuba was faced with the most difficult of situations.

The centralized economic model has been failing for 57 years. It’s a reality that Cuban leaders recognize; Fidel Castro himself even recognized this when he was still President. Why then, if the reality is so obvious, is the economic model not radically changed? Why do they insist on reforming a model that can’t be reformed?

Now in the 21st century, where digital technology is the main foundation for developing any economy, like the development of industry was in the so-called “Industrial Revolution”, the possibility of taking steps towards developing from an underdeveloped platform has become easier and more feasible than ever.

Modernity and technological advances allow countries to skip milestones in becoming a developed nation. The only requirement you need to be able to do this lies in the intellectual capacity of the country’s human resources to be able to assimilate these changes and to adapt themselves to this new model. Today, it is only possible to take this leap forward in countries that have a widespread and high quality education system, like we do in Cuba.

The driving force behind developing a country’s economy lies in its own citizens. Especially if this country’s government doesn’t limit its population’s productive management and operations, and they allow a cycle to be created from the wealth and capital produced as a result, which supports and ensures that the country’s productive forces develop from the ground up and, therefore, society progresses as a whole.

Does national private enterprise exist in Cuba?

In Cuba, there isn’t a legal framework today that defines private enterprise for Cubans (however, it does exist for defining foreign investments). In reality, the nearest thing we have to a private sector are the self-employed and legally they aren’t even that. It’s very simple: their legal status isn’t recognized by Cuban law.

It’s been just over five years since the Guidelines established at the 6th Cuban Communist party congress (PCC) were put into effect and certain forms of allowed self-employment was consolidated as a strong force of entrepreneurship. The self-employed are exceptionally original and very creative. Thousands of them have become real business people. They’ve learnt how to create profits by working. They’ve learnt how to be their own bosses. They’ve learnt how to be efficient, to provide a good service. They’ve learnt how to create and position thousands of brands. And the most important point here: they’ve managed to do this in extremely disadvantageous circumstances. To mention only one of the easiest things the government could resolve, wholesale markets, which were promised at the 6th PCC Congress in 2011, and which are still absent on the domestic commercial scene.

This inescapable truth, along with other external factors which are going to have an impact on the Cuban economy in the upcoming months, has forced the government to study a draft amendment in order to legally recognize these small business people whilst defining the limits of future small and medium sized private businesses. This measure is coming a little late, but it’s absolutely necessary. In theory, it holds great potential for opening a window allowing people to work privately in new areas and some professional associations to operate which haven’t been allowed to up until now. However, it’s still not known what the limits will be in defining this new law if it’s finally approved, and to what extent the government is willing to open up the economy to the Cuban population.

From outside

Is there a legal framework that allows Cubans living outside of Cuba to contribute to resurrecting national private enterprise?

No, at this time there is no legal framework that allows or facilitates such participation. In spite of a strong covert and direct investment movement from émigrés, these investments have been directed at setting up and financing businesses in Cuba with their relatives or friends in many of the 201 self-employment options that were approved by the government for private work. They even invest in other activities which haven’t been officially authorized and therefore operate on the so-called “informal market” (black market).

Today, each year approximately 3.3 billion USD makes its way to Cuba in cash as remittances and another 3.5 billion USD in goods. A part of these resources has helped to finance thousands of private businesses which are successful on the island. Studies undertaken by The Havana Consulting Group indicate that about 90% of remittances and goods sent to Cuba come from the US. Cuban authorities have recently recognized that 92% of remittances also come from the US.

It’s easy to understand why Cubans who live abroad, mainly in the US, have such a strong financial influence on Cuba’s economy and on the Cuban people’s lifestyle. However, all of this financial aid sent by Cuban emigres is humanitarian; it isn’t legally considered commercial aid.

Defining a legal framework that facilitates or allows Cuban exiles to invest in their own country independently, alongside their relatives or friends or even in cooperation with State companies, would obviously be a transforming measure in the Cuban economy.

What would be the sum be of this investment in the hypothetical case that the Cuban government defines a legal framework suited for doing just this? It’s hard to say, but it’d surely beat the figures of cash remittances and goods put together that make their way to Cuba today.

For dozens of years, thousands of Cuban exiles who live abroad have gained professional experience and have developed a large number of skills in different commercial sectors, in business, in the services sector and in economy on the whole. Above all else, they’ve learnt how to live and work in a globalized and modern economy. Many of them are used to dealing with new financial mechanisms, supported by technology and modern techniques of business management. Thousands of them are very successful business people and professionals. Allowing them to invest in their own country would be a way of making the most of their know-how and experience as added value, aside from the financial capital they can provide.

We aren’t talking about million dollar investments for individual projects. A large part of Cuba’s small businesses don’t need such hefty budgets.

At the end of the day, our current reality reveals that more Cubans travel from Miami to Havana than from Havana to Pinar del Rio, Villa Clara or Santiago de Cuba. How can we transform this reality into a motor for business which will lead to our economy being resurrected with the help of Cubans on both sides of the sea that separates us? Without a doubt, it will be a great challenge for the Cuban government, but it will benefit us all a huge deal.

A profound change that never comes

The Cuban economy needs a profound structural change in its legislative and financial apparatus so that it can insert itself within the global market. Cuba also needs a profound change of mentality on the part of those who direct our national economy.

This structural transformation process in both legal and economic terms, should consider including different methods of funding and of contract models which haven’t been looked at for a long time, or which haven’t been established in business practice within the Cuban economy, like for example, the case of franchises, leasing, etc.

Amendments in legislation about the property system should consider the fact that citizens can use their property, as well as other financial rights which business ownership entails while involving legal frameworks for trade and civil relationships.

This property could also be used as a guarantee in contracts when applying for funding or in any kind of commercial transaction. Contract models which are now used in global trade could also be established here, as they’re not currently used or considered in legislative terms when drawing up laws about modern society and trade contracts, and these aren’t made available to the workforce that today is called the “non-governmental” sector [to avoid saying private sector].

Furthermore, these changes could facilitate Cuban entrepreneurs in having access to funding from private financial bodies and institutions, as well as benefitting from state-run financial institutions.

Full speed ahead

At such a critical crossroads for the Cuban economy, all Cubans – those who live on the island just as much as those who live abroad – should be one of the fundamental driving forces behind this transformation; disregarding this autonomous investment power, would be one of the greatest strategic mistakes the country could make when undertaking economic reforms.

There’s a booming business projection within the Cuban economy in the small areas which have been authorized for the private sector, many of them using modern marketing techniques to manage their businesses. Let’s imagine how this performance would work in areas that haven’t been authorized by the Cuban government. In Cuba, a strong business fabric is being created based on entrepreneurship. Outside of the reforms slogan “without haste, but without pause”, entrepreneurs are going at full speed.

The government is taking notice of this reality and has explained that it will draft a new law so as to define the limits of the private sector. Cuban authorities have taken a step in the right direction by giving a little over 18,000 self-employed workers around 600 million Cuban pesos (CUP), that’s about 30,000 pesos (1,500 USD) of credit on average. The Cuban bank is working on microloans and has invested a lot of important resources to create microloan management groups, which go and visit these self-employed workers and give them a financial assessment for their businesses.

This is a telling sign that the small and medium businesses will be an important component in the Cuban economy in the future and the Cuban bank is trying to establish itself as the leading body in giving out financial aid to small and medium sized businesses.

Expecting to develop a country with just foreign investment is a sterile financial task and isn’t a very attractive plan for foreign investors themselves. As well as being a strategy that cuts domestic business development and hands Cuba’s dependency on a silver platter to foreign interests yet again.

Developing an autonomous and private business sector is one of the keys to being able to attract foreign capital and maintain a balance of power that won’t make the country’s economy vulnerable to foreign dependency, which has been the Cuban economy’s Achilles heel for more than five decades.

The Cuban self-employed have proven that they are ready to play this role. In the end, Cubans are showing the government that all they want to do is to work and to create wealth, improve their living conditions and that of their families by working hard, and earn a decent salary which will allow them to fulfill all of their material needs.

The government should be a liberating entity and promote this will to work hard on part of its citizens; it shouldn’t be a cut-off wall putting limits on its own people’s development.

Liberating Cuba’s productive forces is the key to these reforms being successful and, and if they don’t do this, transforming the Cuban economic model will just be one more failed attempt to reform what can’t be reformed under the current framework.

Cuba doesn’t need 325 bureaucratic guidelines in order to turn around its economy. It only needs one guideline: To free its productive forces.