314,538 entrepreneurs

Since the early 1990’s they have been a barometer of the government’s willingness to mix private elements into the socialist economy.

In the current economic policy shakeup, the government has determined that productivity must increase, one million workers on state payrolls are unproductive and costly and should leave, and the solution lies not in new, low-productivity government programs but rather in the expansion of the private sector, where the productivity is. So the numbers of entrepreneurs are going up and will continue to do so. The development of non-farm cooperatives will add another dimension to this sector.

As for the entrepreneurs I cited above, the government’s policies now give positive mention to private bed-and-breakfasts as part of the tourism sector, and the government is trying to get out of the food service business rather than squeeze others out.

So the increase in numbers is interesting, and the change in official attitudes ecen more so (see Raul’s ideas on attitude adjustment from last December). The cuentapropistas were a necessary evil not long ago, and now they are regarded as a strategic necessity.

On second thought, jobs first

The May 27 note in Granma (“To continue facilitating trabajo por cuenta propia”) reported on decisions by the Council of Ministers that changed a few policies for the better, in ways that favor entrepreneurship and job creation. The decision is a sign that new policies in this reform process are being reviewed promptly, and officials are open to change.

It seems, in othjer words, that the Permanent Government Commission for Implementation and Development, a group led by former economy minister Marino Murillo and that reports to the Councils of State and Ministers, is doing its job as a sort of expediter-in-chief of the reform process.

In this case, the new policies governing entrepreneurs are scarcely six months old, but some features of the new tax code have been changed to put a higher priority on job creation first and to let taxation and revenue collection take a back seat. Hence:

· A tax holiday: The tax that entrepreneurs have to pay for each employee they hire has been suspended for 2011 for businesses with fewer than six employees.

· All entrepreneurs may now hire employees, instead of only those in selected lines of work.

· In eight lines of work where a minimum number of employees was stipulated, that requirement is now gone.

· Some monthly tax payments (roughly akin to our withholding) were reduced. Deductions were increased in some lines of work.

· Businesses can close for repairs more easily and for longer periods, suspending their licenses and their tax obligations.

· The minimum monthly tax for room rentals was dropped 25 percent to 150 pesos. Taxes for whole-house rentals dropped too.

· Private restaurants had the limit on their number of seats incresed from 20 to 50.

· Government businesses will be identified, “primarily in food service,” where there is a “low level of activity,” and where the premises can be utilized better by renting it to cuentapropistas.

More to do

The tax changes seem to respond to discussion that took place at the Party Congress (see this video starting at 2:30) and in official and Catholic church media, where it was argued that high tax rates would stymie the very growth of private enterprise that the government sought to foster.

The government’s task is much larger, and the Party’s economic policy guidelines (lineamientos) approved at he Congress amount to the system challenging itself to change, to create a very different kind of socialist economy. Page after page, the tasks require the government to let go in different areas of economic policy – to allow private entrepreneurs to provide services once provided by the state, to allow private entities to contract with government entities and joint ventures, to allow state enterprises to fail, to allow private cooperatives to form in non-agriculture sectors, to allow local governments more autonomy, and on and on. The finance minister said last December that the private sector would grow by 1.8 million workers in the coming years.

The growth in small entrepreneurship can be fairly described as just a start on the actions needed to reach the government’s ambitious goals. But it’s not just talk, it’s a real action that, one hopes, is a sign of much more to come.