How private enterprises (SMEs) canhelp the Cuban economy
HAVANA, May 21st. – Prices – I haven’t been lucky enough to find a private Cuban Small and Medium Business (SME) with affordable prices for Cubans who earn 4,000 Cuban Pesos, for example. If they did exist, how would they impact these consumers’ savings?
It isn’t a matter of SMEs having to sell at prices designed for people on low incomes. If “socialist state-led companies” – which according to official discourse belong to “the people”, but apply up to a 300% profit margin -, don’t sell at these prices, then why does the private sector, which is still weak, have to?
There isn’t a single price in Cuba that has been set based on a State minimum wage. On the other hand, SMEs’ production cost structures and the Cuban economy’s general price level – in a wage-price spiral – don’t give them room to sell products any cheaper (I’m pretty sure that this is true in most cases). Their prices answer the need to target a sector of demand that allows them to recover costs and make a profit. But this isn’t the issue.
SME deja vu
The reality is that Cuban citizens earning an average wage are unable to buy an imported can of beer or even products made in Cuba at a SME. If they try to, a hole will bore into their souls and wallet, because SMEs are selling at similar prices to the government’s MLC (digital USD) stores.
This kind of Cuban doesn’t benefit either because another Cuban with a higher income can afford to buy here. For all intents and purposes, SMEs are as “good” for consumers as MLC stores.
People who don’t benefit from SMEs can’t get excited about them because they don’t have any real and direct reason to celebrate wealth creation they can’t enjoy.
Hoping for such enthusiasm for these economic actors is to make an appeal to “alienate” the poorest, just like the Government does when it tells us its hotels are our own. Deja vu?
Despite the above, there is “hope” that the high prices a consumer with sufficient means pays will then be reinvested into the well-being of all Cubans.
But the Cuban people have been experiencing this argument in the flesh, when the Government rips them off, every day, with its high prices so they can “invest” in social projects. How will SMEs do this? Will they set up small charity projects in the community, that don’t (and can’t) change the structural problems that create poverty?
I’ll rip your arm off to subsidize you with a small piece from another person’s arm.
It could even be said that SMEs could benefit everyone if they redistribute wealth via taxes. But, how many SMEs do we need to have the money we need, via taxes, to fund the changes the country needs?
How much do these businesses need to sell in order to do this? Do we have that many? Add to this the fact that Cuba doesn’t have a tax system to do this or great public administration when it comes to handling everyone’s resources; in fact, it has the exact opposite.
Furthermore, not everybody will jump onto this entrepreneurial train, they can’t. Very few Cubans have the capital or access to the capital needed to start up a business.
It’s likely they won’t take the best job position – owner or better paid employees. This won’t happen because the Government has a “drip” policy to enter the private sector, including a political filter (dissidents can’t own SMEs).
Yet, we can still say that SMEs “do something”, at least.
But quantitative change doesn’t become a qualitative leap, much less in a hostile environment. In Cuba, the sum of every SME possible today, and the SMEs that might appear tomorrow, won’t steer the country towards prosperity, because you need a favorable environment for this to happen (which isn’t the current situation); which includes a system of efficient and competent large companies.
In summary: SMEs won’t be able to contribute any more than what they are today under the current circumstances and by this game’s rules.
So, who is benefitting from the existence of SMEs in Cuba?
– The middle and upper classes who can afford to pay “SME prices”. Cubans earning 4000 Cuban pesos have no place within this equation.
– SME owners and their employees, who are only a few, by the way (3.9% of the total number of Cubans employed, according to official statistics).
– The Government, who offers certain privileges in exchange for support and winning over allies. It is another form of control. Nobody wants to lose their business or not be able to open up a business because of political issues.
Cuban leaders have created a kind of “Cuban dream” with SMEs. Selling this picture of development and prosperity has instilled hope in the masses and has guaranteed the leaders one more day in power.
The only one responsible for this extremely elitist impact (on inequality) is the Government because the private sector is only what it can be and what they allow it to be. They might cease to exist tomorrow if that’s what the Government decides if it decides to launch another Revolutionary Offensive or commit another crime against the economy.
But SMEs being vulnerable to the Government, being what they can and have only been allowed to be, with costs and the economy’s price level forcing them to push up prices, with SMEs being able to do something at least (although not reaching the poor).
For “the people’s State companies” to sell products at expensive prices isn’t a reason for every Cuban that doesn’t directly benefit from those to give up their own demands (sufficient and affordable supply, for example), nor hush about everything that SMEs don’t do or can’t do, with the illusion that they can resolve key problems.
Will SME advocates ask those who can’t pay or those who find it incredibly hard to pay their high prices to sacrifice themselves so that these companies can continue to exist? Once again, is it deja vu?
Betting on the current framework of implementing SMEs, whose conditioned retail prices are an essential part – are not the cause or the only cause – of creating and formalizing inequality, isn’t advocating for a project for a better Cuba, that generates prosperity, well-being, etc., institutionalizing it.
It is rather advocating for an elitist system that benefits certain social groups above others, institutionalizing inequality among Cubans.
This model doesn’t focus on improving the working classes’ lives, but rather on safeguarding a selective process to obtain better living conditions, via business.
A mechanism that will be especially beneficial to people with access to certain resources and that will reserve the best economic spaces for those who the system can trust, as part of a strategy to implement economic change – which is desperately needed – without removing the foundations of power.
SMEs aren’t a solution to the problems at the heart of the Cuban economy. The SME model that is being implemented won’t fix or bring poverty to a halt in Cuba. It doesn’t have to either, because it is a business model, not a development strategy or project for Cuba.
It’s interesting that amid this severe economic crisis, the only measure the Government has implemented, that may positively influence production, doesn’t protect, or help the most vulnerable, but rather further concentrates privilege. Why?
The people who support the presence and need for SMEs also have the option of advocating for a different opening for them, with rules that do in fact encourage larger-scale businesses and ventures, that are also affordable for low-income groups.
Citizens can push a series of ideas to demand the Government make changes and not to ask for more patience from fellow Cubans; including:
– Opening SMEs shouldn’t be subjected to the Government’s means to “grasp” foreign currency (opening the country up to imports would allow a percentage of foreign currency to go directly to the State), and this shouldn’t be done when the state incompetence is high and answers to the search for results to solve the economy’s structural crisis: the agricultural sector, infrastructure, professional services, etc.
– The creation of mechanisms so that private resources, including private capital, invest in funding Cuban businesses with great potential, like the ones that exist today, instead of importing finished goods.
– Eliminating third parties in the private import/export procedure.
– Encouraging incentives for foreign institutions with capital available to invest in Cuba, like development agencies with offices in Cuba, so they can provide funding without the State’s unnecessary meddling.
– Offering economic and operational freedom to private actors, which includes getting rid of red tape and discretion when approving licenses.
– Boost the creation of mechanisms, such as subsidies, to encourage SMEs geared towards solving social problems.
– Encourage other forms of production, such as cooperatives.
– Find a solution to the exchange rate problem and a lack of access to foreign currency, with help from abroad if needed.
These actions, as well as others I won’t write here because of limited space and the fact that experts, private actors and citizens on the whole know full well, will lead us to have a private sector that will distribute wealth fairly. Plus, with SMEs selling according to everyone’s means, they become a greater source of well-being.
This is an alternative, that is feasible from a production point of view because we can’t move forward and get out of this crisis with “socialist state companies.” But without the changes needed for SMEs, the country is facing another case of what could have been and will never be.