Looking like a small business sector

In theory, the addition of 250,000 new licensed entrepreneurs to the 143,000 that now work in that sector, plus the creation of cooperatives in production, service, and retail businesses, can be a huge economic success – for the workers, for their customers, for tax collectors, for the productivity of the Cuban economy as a whole.

But it all depends on the policies and conditions under which they work. Looking just at the entrepreneurs, or trabajadores por cuenta propia, a few questions arise:

• Will the government grant licenses to any and all who apply, or will priority be given to laid-off government workers?

• Will the same municipal offices that have spent years turning down applications for new licenses now get the message and start enabling a big expansion of the sector?

• Who will be allowed to hire workers – all cuentapropistas, or just those in certain lines of work?

• How will the taxation system work? Now, cuentapropistas pay a progressive income tax – actually, it’s a tax on revenues with a minor deduction for expenses. What will be the new tax rates and at what levels of income will they kick in?

• If someone has been working without a license and wants to start working legally, will a license be granted?

• How will the government address cuentapropistas’ problems in getting supplies? (In two surveys I have done, they identify this as their top problem.)

The government begins to answer these questions in a Granma article today, and promises more information in the coming days. New regulations go into effect October 1. Coverage here from Reuters and AP.

Today’s article begins by promising a change in course. The new policies, it says, aim to “distance ourselves from those conceptions that condemned self-employment almost to extinction and stigmatized those who decided to join it, legally, in the 1990’s.”

As for the new rules, according to the article:

• Now, only restaurants and small food-service operations such as sandwich stands can employ assistants. Come October, self-employment will be allowed in 178 lines of work (an increase), and in 83 of those, employees will be allowed.

• No new licenses will be given “for now” in nine lines of work where there is no legal source of supplies, e.g. car body repair, metal working, sale of granite and marble items.

• The economy minister says that stores that sell hardware and kitchen equipment are needed, ideally selling to cuentapropistas at wholesale. That won’t be possible in the next few years, he says, so “now we have to achieve a market” that sells these things at retail prices.

• Restaurants will be permitted to seat 20 instead of 12. The prohibitions on serving beef and shellfish will end.

• A change that seems designed to bring people in from the black market: the sector will be open to those without “vinculo laboral,”i.e. those with no current workplace.

• People will be permitted to rent “housing, rooms, and spaces” for cuentapropistas to use as places of business.

• Cuentapropistas will now be able to have licenses for more than one line of work and will be permitted to work outside the municipality in which they are licensed.

• Cuentapropistas will be permitted to sell goods and services to state entities.

• The Central Bank is studying “how to make viable the possibility” of providing loans to cuentapropistas.

• The prohibition on renting entire houses or apartments for convertible peso rents is to be repealed.

• Taxes will be calculated based on “personal income, sales, public services, use of the labor force [hiring], in addition to contribution to social security.” No details, such as tax rates, are provided.

Given the way this sector has been treated for the past 15 years – permitted, but not allowed to flourish and often viewed with suspicion – it is amazing to see a prominent article in Granma announcing a liberalization. The change in tone, and the acknowledgement of “stigmatization,” equally so.

As for the specifics, they are promising in that they begin to remove some arbitrary limits on good, productive work. The permission for Cuban citizens, rather than the state, to hire workers in 83 lines of work is a big ideological step. The tax system remains a big question mark.

Yet it looks as if Cuba’s days of having a small, stagnant self-employment sector is over. Looking ahead, if you take entrepreneurs and their employees, and add the yet-to-be-defined new cooperatives in production, retail, and service businesses, it appears that a small and medium-sized business sector is on the horizon.