Cubazuela

A column of mine on the Administration's approach to Venezuela and Cuba, and Cuba's options.

The Helms-Burton threat

In Cuba Standard, a column of mine on the Administration’s consideration of allowing Title III of the Helms-Burton law to go into effect next February. Spoiler: It’s a bad idea.

"Private property" in the constitution

Before and since the proposed new Cuban constitution (pdf) was released, there has been lots of talk about how it “could permit owning private property,” as a Washington Post editorial put it.

Sure enough, it deals with private property – but not exactly in that new-dawn-of-private-property way, which wouldn’t make sense because it is already permissible for Cubans to own private property, as we use the term. The vast majority of Cuban homes are owned outright with property titles and since 2011, residential properties are bought and sold on the open market. Many but not all individual farmers own their land and homes outright. Cars are owned and traded. Personal effects, of course, are privately owned.

What the new constitution does is to enumerate different kinds of property – and among these, to draw a distinction between personal property and private property. (See paragraphs 93 and 94 in the text linked above.)

The distinction is immaterial to a capitalist but significant to Marxists, and it goes like this: “personal property” refers to personal effects that have no economic purpose, while “private property” is defined as private ownership of means of production.

Hence a socialist constitution that stresses the state’s predominant economic role will also enshrine this concept of property, and with it the private sector’s role in the economy.

A narrow way to view this is that the constitution is catching up with reality, because private entities, both individuals and cooperatives in farming and other sectors, already own their means of production.

Another way to view it is as a more solid legal foundation for future legislation governing the private sector, such as the pending laws on enterprises and cooperatives.

If, that is, the Cuban government decides to take advantage of it when it comes time to write those laws.

A win for the control freaks

Cuba has legalized the operation of private bars where a maximum of 50 customers can enjoy alcoholic beverages “in their natural state or in cocktails,” and there can be recorded music, or live performances as long as the artists are hired in full compliance with Ministry of Culture regulations.

This is a trivial aspect of Cuba’s new small business regulations, and like many over the years it legalizes something that has been going on already.

But it makes you think back to March 1968 when Fidel Castro railed against private bars and other businesses during his Ofensiva Revolucionaria (see speeches here and here). He professed shock that there were 955 bars in Havana. He disclosed that undercover investigations found that 72 percent of their patrons “maintain an attitude contrary to our revolutionary process” and 66 percent “are anti-social elements.” He didn’t like other private businesses either, nor the people who ran them. His speeches often included the descriptor “lumpen.”

So he closed virtually all Cuba’s remaining private businesses, tens of thousands of them, including all the bars, because of a perception that they weren’t needed and they engendered the wrong kind of thinking.

So if you root for the privados, 1968 is the low point in the Cuban government’s long struggle to figure out how much private property and private enterprise are to be permitted in the socialist system.

And 1968 is why Cuba had just a few thousand private businesses when it opened up trabajo por cuenta propia in 1993, and it’s why when Raul Castro took office a decade later and took a fresh look at the economy, he noted that the government was unnecessarily and badly running state enterprises to provide almost every service: repair services of all kinds, worker cafeterias, beauty and barber shops, etc.

No one ever made a speech that explicitly threw the thinking of 1968 out the window, but that is what happened when small enterprise regulations were significantly liberalized in 2010. Individual entrepreneurship has since quadrupled in Cuba, from about 150,000 to nearly 600,000, now comprising 12 percent of a labor force where about one in three persons is employed outside the state. These entrepreneurs are essential sources of job creation, tax revenue, and services. Their bed-and-breakfasts sustain tourism centers such as Trinidad and Vinales where hotel capacity is minimal. They are in every city and dusty small town, with the common characteristic that they improve family income, usually quite a lot.

The new regulations (linked here), a package of new norms signed by Raul Castro and various ministers between February and July, are advertised as “updating, correcting, and strengthening” trabajo por cuenta propia.

Actually, “controlling” might be a better word.

Odds and ends

·      I wrote recently that state employment in Cuba had dropped by more than half million. Actually, it’s double that. See this article by Prof. Ricardo Torres, showing that the state shed 998,000 jobs between 2009 and 2016.

·      Physician Carlos Lage became a vice president of Cuba’s Council of State and served as a quasi-prime minister until 2009 when he and a few others of his generation lost their political footing and were expelled from office. 14yMedio looks at his life now, practicing medicine again at the Policlínico 19 de Abril.

·      Financial Times on Cuba’s drive for foreign investment.

·      It may be that no te importe tres pepinos, but here’s a Twitter thesaurus of Cuban slang.

·      Billboard on the weekly paquete as a music promotion platform.

·      Granma’s “Today in History” feature on the sinking of a German U-boat in Cuban waters during WWII.

·      The new U.S. threats to sanction foreign companies that do business with Iran recall the extraterritorial U.S. sanctions in the Helms-Burton law, former Swedish foreign minister Carl Bildt explains, while calling on Europe to resist.

·      Prof. Larry Press rounds up the information on the public record about the views of Cuba’s new President on Internet development.

Tourism down, from U.S. and overall

Contrary to some media reports that I cited, tourism is down seven percent in the first four months of 2018, according to the tourism ministry cited by ACN. Cuban officials still hope to reach 5 million visits this year, after 4.7 million last year. The four million mark was hit in 2016, and the three million mark just two years earlier. U.S. visits dropped 56 percent due to the new Trump Administration rules and the travel warning (Reuters). U.S. cruise ship visits appear to be substantial; this article says that 74 percent of U.S. visitors arrive by air. Finally, more hotel news: a hotel of “approximately 42 floors” will be built at 25^th and K in Vedado (Cubadebate), apparently where there is now a large depression across from the Methodist church.

New rules coming for Cuba's entrepreneurs

The news starts about ten paragraphs into this Granma story on a Central Committee meeting on economic policy. New “legal norms” affecting Cuba’s more than 580,000 cuentapropistas have been signed and will soon be issued, and there will be some kind of “training” for them and 30,000 officials, presumably to promote tax and regulatory compliance.

Apart from that, monetary unification remains a high priority, there are plans to continue investing in the industries (construction materials, etc.) that enable improvement of housing stock, and work continues on constitutional reform to make Cuba’s constitution reflect “the principal economic, political, and social transformations” resulting from the last two party congresses. No mention of term limits or new laws governing the election process, comminications media, or non-government entities, all of which have been said to be under consideration.

Reuters story here.

A wholesale market!

Granma reports that the first wholesale food market has opened in Havana, fulfilling a longstanding policy commitment to create wholesale supply outlets for the growing private sector.

For now, the clientele will be restricted to non-farm cooperatives (former state restaurants converted into private cooperatives). Later, it will serve entrepreneurs renting space in state facilities, and it makes no mention of serving the thousands of private paladares and cafeterias that also need access to these supplies – not to mention their customers who would appreciate lower prices, and Cuban consumers who don’t enjoy seeing entrepreneurs at their local food store buying 12 cases of beer or 10 kilos of cheese at a time.

Every time the subject comes up, Cuban officials speak of the need to move gradually, and they express worry about the cost of excess inventories in their retail system (for example, here and here and here). So it’s not surprising that stores will only open in other provinces after this one in Havana is in a state of “optimal functioning,” an official explains in the article.

But it’s a start.

An opening to apps developers? (Updated)

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The February 26 issue of Cuba’s Gaceta Oficial contains a September 2017 resolution from the communications ministry (No. 256/2017) that appears to allow both enterprises and entrepreneurs who are licensed to work as programmers to develop and sell applications under that license, if they apply for a separate permit for that purpose.

I say “appears” because it would be nice to have some coverage in Cuban media or a policy statement that explains the intent. But the resolution’s language is clear, and it looks like a positive step at a time when the wind is blowing in the opposite direction. Cuba’s IT sector is proficient but its commercial activity has been restricted to state enterprises. If this is a recognition of the value of young UCI grads developing apps on their own, then it’s a sign that someone is doing something about a self-imposed obstacle to innovation, economic development, and smart young Cubans staying in Cuba. Let’s hope it continues.

Update: The Ministry of Communications published the resolution here.

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.

Malmierca on the new investment law

The text of Cuba’s newly approved foreign investment law will come out in due course, and according to this presentation by trade and investment minister Rodrigo Malmierca, the new policy will also be defined by regulations and norms to be issued by at least four parts of the Cuban government.

The first principle he stated regarding the new policy is that foreign investment is viewed now “as a source of development for the country in the short, medium, and long term.”  That may seem obvious, but it’s a change from the old, more narrow formulation of foreign investment as a “complement” to Cuban production.  Everything else flows from that, beginning with the broader list of specific goals that foreign capital is to serve – instead of “capital, markets, and technology,” it now includes job generation, acquisition of new management methods, and more.  In two years, if a substantial number of new investment projects are operating in Cuba, that change of thinking will be responsible.

Other points of note:

If you’re curious as to whether the priority on renewable energy means that the taboo on cane-based ethanol has been cast aside, there’s not a clear answer.  He refers to the use of “biomass, which includes that of sugar cane” but it’s not clear whether he means cane itself or bagasse, the waste product of sugar milling.

He notes that cooperatives will be able to participate in foreign investment projects but with the participation of a state enterprise; details here.

Contracting of employees will continue to occur through state employment agencies, with salaries negotiated between the foreign partner and the agency.

He, like others, refers to “errors” of past policies on investment but doesn’t say what they were. 

Sugar and agriculture, two high-potential sectors where Cuba has shown low interest in foreign participation in the past, are on the list of priorities where sector-specific policies have been defined.