Tuesday, December 11, 2012

Cooperatives law aims to boost private sector jobs

Cuba’s turn toward a larger private sector has depended so far on small-scale entrepreneurship and the expansion of private farming.  Employment in the small entrepreneurial sector has grown from about 140,000 in 2010 to 395,000 today, benefiting from liberalized regulations that allow the hiring of employees and more favorable tax treatment than before.  Private farming has expanded with the distribution of 170,000 parcels of government land in no-cost leases.

But these steps are not enough to meet the government’s goals for reducing state payrolls and creating large numbers of private sector jobs. 

With new laws published today in the Gaceta Oficial and summarized in Granma, the government is taking the next step: the creation of private cooperatives outside the farm sector.  This action, one more step in the implementation of the 311 economic and social policy reforms approved in the 2011 Communist Party Congress, opens the door to the creation of a small and medium-sized business sector in a socialist style, organized in the legal form of cooperatives where each member has one vote. 

I’ll get to the fine print in the actual laws, but for now, from Granma’s summary, this is a substantial step forward:

·         Soon, about 200 coooperatives will be created around the country in transportation, food service, fishing, personal and domestic services, recovery of raw materials, production of construction materials, and construction services. 

·         The cooperatives “will not be administratively subordinated to any state entity.”

·         Earnings will be taxed at rates lower than those charged to small entrepreneurs.

·         The cooperatives will set their own prices (except in unspecified cases where the state controls prives) and decide on their own how to distribute revenues among their members.

·         It is not clear if there is a list of permitted lines of work in which cooperatives can engage.

·         Good news: Start-up cooperatives are allowed where three or more persons decide to form one.  Applications are submitted to local government offices and – bad news – go all the way up the chain to the Council of Ministers for approval. 

·         Cooperatives can compensate members for goods that they bring to the cooperative.

·         There is an unspecified limit on the hiring of temporary employees in order to maintain the character of cooperatives where all who work in them have a vote in their governance.

·         Some cooperatives will be formed by converting state enterprises into cooperatives.  First preference will be given to those already working in the establishment and who wish to try the cooperative arrangement.

·         A bidding process is established to lease idle state installations to newly formed cooperatives.

More later.

1 comment:

Anonymous said...

If the Cuban governemnt was really interested in creating private sector jobs, it should:

1- Create a code for investors with regulations that would permit them to operate efficiently in the country and clearly establishing the rules and regulations that they would be required to meet and guarateeing them:

a- That they would never be expropiated.
b- The right to hire their own employees and to pay them direcly without the government appropiating as taxes an excessive amount of their wages.
c- The right to import freely free of custom duties all their foreign imputs.
d- The right to export free of duties all their finished products.
e- The right to convert their foreign currencies to pesos and their pesos to foreign currencies freely at known rates.
f- The right for their officers and employess to move freely in and out of teh country.
g- The right to repatriate their profits and to sell their fixed capital to other businesses and liquidate their investments at any time.

2- Finally every company taht is willing to meet the requirements of the investment code and that signs and agreement to do so should be allowed to set up shop in Cuba automatically without any other sort of government authorization.

Nefotiation on an ad hoc basis without transparent clearly defined rules and regulations that requires extended negotiations and specific authorization is not only a waste of time and a disincentive but also lays the groundwork for corruption and bribery.

This is specially true in an environment in which government officials are subject to rationing and do not have sufficient access to freely convertible foreign exchange.

If these conditions and better relations to the US were obtained to secure a nearby market for goods produced in Cuba, foreign investment in Cuba would be available and would be able to absorb a great deal of the available excess supply of labor.

But existing unnecesary government regulations and bad relations with the US hinders foreign investment.

Until these problems are solved the only other possible solution is easing emigration to facilitate the employment abroad of teh excess labor force that is unable to find work in the island.