Friday, April 6, 2012

New pilot project: cooperatives

Trabajadores reported yesterday, without much detail, on various issues discussed in a Council of Ministers meeting that took place March 31. 

The article referred to an “approved policy for the experimental creation of cooperatives outside the agriculture sector” that was discussed by Vice President Marino Murillo, head of the commission that is in charge of implementing the economic reforms.  His deputy Andollo Valdés later discussed the transitional “legal norms” that will take effect in the provinces of Artemisa and Mayabeque (formerly Havana province) and the Isla de la Juventud that will enable those provincial governments “to carry out in an orderly way the approved experiments.”

This is dry and uninformative language that describes a development that bears watching. 

Even though small entrepreneurship has grown by more than 200,000 and is expected to continue to grow, additional measures are needed to reach the stated goal of moving more than one million workers from public to private (or, as they put it, “non-state”) payrolls. 

The creation of cooperatives is the next step, and it begins now with this decision to embark on pilot projects in three provinces.

How will it work? 

Surely some will involve converting state enterprises – repair shops, light manufacturing, etc. – into cooperatives where the workers will continue in their current workplace, with their current equipment, and one day move off the public payroll and be on their own.  Call this the sink-or-swim variant.

It remains to be seen whether creation of new cooperatives will be permitted – say, a dozen workers who want to form a cooperative to build or repair housing, or another dozen that wants to win contracts to provide food service to offices or schools.  Call this the start-up variant.  An open question here is whether professionals whose services are not among the lines of work permitted in the small entrepreneurial sector (trabajo por cuenta propia) will be able to participate.  There are many other questions involving taxes, rent, rules governing the structure of the cooperatives, and more. 

If this sector takes off it will generate jobs for the public, and tax revenue and budget savings for the government.  And it could produce something resembling a small and medium-sized business sector, albeit businesses governed as cooperatives.

Also in the article:

A report on the “unfavorable economic-financial state” of the agriculture ministry led to discussion of changes that need to be made in agriculture policy, but they were not specified.

A new planning institute director was named, and there was discussion of construction code violations (“violaciones urbanísticas”) taking place “from Cape San Antonio to Maisi.”  The solution, Raul Castro said, “is not to prohibit building, but to indicate where to do it.”


Anonymous said...

In both variants for the ccoperatives, the sink or swim variant or the start up, there are several factors that will be decissive to its success.

The first is government taxation policy.

This must be kept at such a reduced volume that whoever enters a cooperative can obtain a higher income than he was able to as a government employee.

This would provide an economic incentive for workers to abandon government employment voluntarily and join a cooperative.

The government is already obtaining a benefit from ceasing to pay unnecessary salaries and fringe benefits and opportunity to steal from its employees. Why try to derive an additional benefit in the form of high tax benefits from such members of the cooperatives?

The tax rates can be raised later once the unnecessary employment in the government has been eliminated.

The second is to create a wholesale market where the free lance workers and members of the cooperatives can obtain the goods they need to furnish their services so that they do not have to buy goods stolen from the government in the black market in order to survive.

The third is to avoid regulating the quantity of workers or cooperatives that participate in providing goods and services and allow the market to determine such quantities.

This will gradually permit a rational distribution of the labor force in such activities as a result of the fluctuation of earnings due to competition.

The problem with Cuban economic planning is the planning itself. The planners should understand the basic irrationality of trying to plan microeconomic activities and leave such decissions to the market itself.

Their efforts should be concentrated on making the adequate macroeconomic decissions that would allow the market to function efficiently.

If they continue to try to substitute the market mechanism, the result will be the same chaos they have already created.

The way out of the chaos is to allow a macroeconomically regulated market to operate and make efficient decissions.

In this respect the first measure that should be taken is to eliminate the dual currency system existing in Cuba.

There should be only one currency and it should have a convertible status.


Anonymous said...

What could really help to solve the housing problem in Cuba would be to allow foreign investment in housing construction and in the construction materials industry.

But this would also require modifications to the housing code to allow rented housing at market prices and the eviction of tenants that did not pay their rents.

Such housing could be rented in covertible currencies to anyone willing to pay the rents and could be made available to Cuban Americans and foreign tourists willing to reside in Cuba for over a certain amount of time and to cuban residents in the island whose family members abroad would be willing to pay their rents for them.

This would not only bring in convertible currency as payment for rents but promote greater covertible currency expenditures in the island by increasing the amount of time spent by foreigners or Cuban Americans in the island.

Part of the apartments in such buildings should be assigned to Cuban's living in the island at moderate rents.

Or alternatively a part of the yearly profits from such rents or a certain % of the rents from such building plans should be taxed and devoted to build low cost housing for the island's population.

Another use would be to devote part of the taxes derived from such housing to acquire new building technologies for low cost housing such as sheet rock that could substantially raise the productivity, lower the costs, amd increase the yearly production figures of such housing.

Such investment could also help to substantially promote productive employment and to reduce unnecessary employment in the government sector.

But in order for this to work the workers in this sector must be allowed to earn higher wages than they do at present in their government sector jobs to stimulate their voluntary transfers.

A possible winning combination would be a foreign or Cuban American housing investment firm subcontracting with foreign construction firms that would use native Cuban individual or cooperative labor to build multiapartment building proyects .

There is a huge need to build housing in the island and to give productive employment to the island's labor force and if the government can not do it, they should allow foreign or Cuban American investment firms to take on these tasks.

However, a flexibilization of the embargo regulations to allow Cuba or American firms to buy building materials or invest in the construction materials industry and in the construction industry in the island would also be necessary.

This would also aid the US balance of payments and increase sorely needed employment in the US.