Monday, April 28, 2014

A new step on state enterprises (updated)

Cuban officials regularly say they are in the hard part of the reform process, and today they took a step forward by publishing new regulations on state enterprises. 

Today’s action was previewed last July by reform czar Marino Murillo, who expressed weariness at subsidizing businesses that can’t make it on their own. 

This is not an easy challenge.  Anyone can run a profitable hotel in Varadero, but thousands of Cuban enterprises have their origins in past decades where Cuba’s planned economy was connected to those of the Soviet bloc, and many – including in agriculture – are not profitable.  State enterprises belonged to ministries, and the ministries had to approve decisions big and small, including purchases of supplies and payroll changes such as dropping one engineer and adding two janitors.

As defense minister, Raul Castro began to tackle this problem in the 1980’s through a process called perfeccionamiento empresarial.  It is still being implemented today, although it never reached all state enterprises.  Its main features were cleaning up a company’s books, doing a tough diagnosis and planning exercise, giving managers greater authority and autonomy, and instituting incentive pay and profit sharing.  Today’s new regulations include many of these features, and they also give businesses flexibility to enter new and more profitable lines of work.  Today’s regulations are also incredibly detailed, presenting long, detailed lists of the functions of enterprises and managers – old habits die hard. 

Another difference in today’s context is that ministries are spinning off the businesses under their control to organizaciones superiores de dirección empresarial, where the businesses are supposed to function with greater autonomy.

These are rational economic measures – separating businesses from the ministries, giving managers more autonomy, institutionalizing incentive pay and profit sharing for workers. 

The hard part is politically hard – allowing managers to lay off excess workers and living up to the commitment to close state enterprises that can’t survive without subsidies. 

Those tasks are essential to a major goal of the reform program, which is to improve government finances.  They will be easier to carry out to the extent that other parts of the refoms proceed – more private sector job creation and the creation of new jobs and businesses through new foreign investment.

Here’s coverage from Granma and AP.

Update: further explanations of the policy in today’s Granma, and coverage from Reuters.

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