The train of economic reforms in Cuba picks up speed

HAVANA, Sept. 2nd. On August 19, 2021, the expected legislation that updates the general provisions for the exercise of self-employment,

regulates the creation and operation of micro, small, and medium-sized enterprises (MSMEs) and the rules that regulate the constitution and operation of cooperatives in non-agricultural sectors (CNA), that is, in industry and services,1 was published in the Ordinary Gaceta Oficial No. 94.

In addition, other Decree-laws on personal contraventions in the exercise of self-employment and social security and the tax system for workers of all these forms of property were included, and a Decree that specifies the activities that MSMEs, CNAs and self-employment2 cannot carry out.

This legal body, systematized and backed by two resolutions of the Central Bank of Cuba (BCC), comes to fill gaps and rectify mistakes in previous legislation; it constitutes a great advance in what has to do with articulating the different forms of ownership and management within an increasingly diverse and complex economy.

It is also an approximation, one more step in a process of structural change and legal framework of the Cuban socialist economic system, which is advancing on that path dubbed “updating.”

It covers the forms of private ownership and management: it recognizes the difference between individual and family work, and that of up to three employees, of private MSMEs. It creates the possibility of establishing state or public and joint MSMEs.

It institutionalizes the so-called “non-agricultural” cooperatives, concluding the experiment that took a decade to become consolidated and promises to undertake a necessary relaunch. It defines for the private sector the activities it will not yet be able to carry out. In this article, we’ll take a look at what these laws say, and what they don’t say, and explain some of their economic implications.

Euphemisms and denials

Terminology is frequently used in the official discourse and media, and even the academic one, which denotes reluctance to face realities and ideological dilemmas, but what it does are reduce clarity and transparency, for example: saying “update” when in reality we are talking about reforms; saying “self-employed workers” instead of private workers; socialist state enterprise as if it had two surnames when many still are not and should set the goal of achieving it (socialist state enterprise is not a definition, but an aspiration); calling enterprise — until now — only the state ones, not including cooperatives and future MSMEs, which are also enterprises; considering entrepreneurs only the private ones, when every person who directs or engages in an organized economic activity is one.

These are euphemisms, reticence, allusions that create negative or incomplete images, and that serve to divide rather than unite.

Perhaps the worst are the enthroned negative identities: “forms of non-state management,” which even has its initials (FGNE), are private and cooperative forms of management; “non-agricultural cooperatives” (CNA) are industrial and service work cooperatives.

And still the new legislation, despite the advances, differentiates and separates the industrial and service cooperatives from the agricultural cooperatives, which are governed by another legal framework, when all over the world there is talk and legislation about cooperatives, covering both and others, which Cuba has not yet contemplated incorporating.

Self-employment

Decree-Law 44/2021 “On the exercise of Self-Employment,” authorizes three forms: the autonomous worker who works independently; an individual authorized to hire up to three workers; and a family project, which includes first degree relatives of consanguinity and affinity who work with that self-employed worker.

Now self-employment is not associated with an activity, but with work projects, which can include in their design all those activities that are not expressly prohibited.

Cuban citizens and foreigners permanently residing in the national territory can exercise self-employment. The self-employed can market their products and services to Cuban and foreign individuals and legal entities and make payments through a current account opened in a Cuban bank.

They can export goods and services that they generate and import raw materials or goods that ensure their productions, through authorized state exporting and importing entities. They include creators and artists and individual agricultural producers.

They must set up an employment contract with the workers they hire, under the terms provided in the Labor Code, and the hired workers can sign employment contracts with more than one employer.

Municipal Procedures Offices are created, where interested persons submit their application to exercise self-employment, which will also be in charge of providing information and advice, processing applications, permits and consultations, in correspondence with the work project to be carried out.

MSMEs

The Ministry of Economy and Planning (MEP) authorizes the creation of micro, small and medium-sized enterprises (MSMEs).

MSMEs are economic units with legal status, state-owned, private or joint. In my first article, I explained their characteristics and main powers.

The MSMEs adopt the form of Limited Liability Company (SRL), with business autonomy. As legal entities, they contract goods and services with other subjects, state and private, under equal conditions.

They will be able to export and import; manage and administer their assets; define the products and services to be marketed, as well as their suppliers, clients, destinations and market insertion; operate bank accounts and access financing; set the prices of their services and goods; define their structure, staff and number of workers; determine the income of their workers respecting the established minimum wages; make the investments that are required; create establishments inside or outside the province where their registered office is located; and access the financing funds established for them.

The corporate purpose of MSMEs is that agreed by the partners in the Bylaws, within the authorized activities. Individuals cannot be members of more than one private MSME.

Industrial and Service Work Cooperatives (CTIS)

From the triumph of the Revolution until 2012, the only authorized cooperatives in Cuba were agricultural ones. As of that year, the country’s Council of Ministers began to approve the experimental constitution of the first non-agricultural cooperatives (CNA), which we prefer to classify as industrial and service work cooperatives (CTIS). From the beginning, the CNAs were classified as an experiment.

Until March 2014, 498 CTIS were approved, in the sectors of commerce and gastronomy, construction, technical and personal services, recovery of raw materials, light industry, public transportation and energy. Of the total approved cooperatives, 77% arose from the state activities that were handed over to their workers (induced cooperatives) and 23% arose from the non-state sector, at the request of self-employed persons interested in associating (grassroots cooperatives).

The absence of university professions among the 128 self-employed activities then authorized limited the number of grassroots cooperatives, despite the many requests received by the authorities.3

La Conceptualización del Modelo Económico y Social Cubano de Desarrollo, 2016 (The Conceptualization of the Cuban Economic and Social Development Model), in its Article 159, establishes that cooperatives “form part of the socialist ownership system…being the object of special attention” among the forms of non-state ownership.4

However, in practice, the CTIS raised much questioning and criticism.5 The number of cooperatives in operation increased annually to reach 439 in 2017, but thereafter began to decline to 421 in 2020.6 In the process, many of those who asked to create cooperatives were discouraged and gave up.

With Decree-Law No. 47 the experiment finally ended. It establishes that “the cooperative is an economic entity, of a business nature, that is constituted based on the voluntary association of people who contribute money, other goods and rights to satisfy the economic, social and cultural needs of its proprietary partners, as well as of social interest, supported by their work and in the effective exercise of the universally recognized principles of cooperativism.”7

They are freed from the tutelage of the organisms of the Central State Administration that constituted their related bodies — and that did not always support them — and the order of the conduct of the process that the Permanent Commission for Implementation and Development had is annulled.

In its place, the National Council of Economic Actors will be created, chaired by the Ministry of Economy and Planning (MEP), as the “inter-institutional governing body of policies and regulations concerning cooperatives,” to “design and propose public support policies for the promotion, strengthening and development of MSMEs and non-agricultural cooperatives.”8

The application for the creation of cooperatives is presented to the MEP and the Council of Ministers approves it, a process that is still excessively centralized, but which is justified in this initial stage, in which not all territories are in a position to assume this task.

What they CANNOT do

Decree 49/2021 includes the list of unauthorized activities to be carried out by MSMEs, CNAs and the self-employed.9 The list exemplifies the political and economic limits that still persist.

It includes a good number of professional activities, including accounting, business management consultancy, architecture, engineering, advertising, the printing of publicity material, public relations, market research, environmental and veterinary consultancy for agricultural animals.

It means that most of the commercial and business services that cooperatives and MSMEs — and also state enterprises — will need to operate and increase their productivity are prohibited for all non-state entities.

Why is there this fierce resistance to allowing the majority of Cuban professionals to autonomously practice? It has never been clearly explained, but perhaps it is because of the fear that professionals will leave the state sector and go to the private sector en masse. But haven’t they already gone into non-professional jobs in droves in the country, or even left the active workforce altogether?

And, worse still, haven’t they left the country en masse to practice their profession or any trade or job that pays them more, or at least offers them more hope for the future? “The private exercise of a profession does not imply the privatization of the means of production were this professional works and much less for the professions mentioned above,” wrote the economist Oscar Fernández.

Not only is it economic nonsense that limits the development of the productive forces of all forms of ownership and management and slows down local development, but, worse, it is something that has been violated in practice, with the full knowledge of the authorities.

Examples abound bookkeepers that already practice accounting and business consulting, including the state-owned; architects and engineers turned contractors; designers and journalists who have created advertising agencies; veterinarians who tend farm animals. Wouldn’t it be better to legalize their work?

The prohibitions also cover other activities that are frequently openly exercised, such as the sale of imported goods without a commercial character and the storage and warehousing of products.

Other unauthorized activities have to do with the tourism sector: travel agencies and tour operators (guides), sale of services and organization of travel packages; management of sport fishing, including diving, mountain guide.10 All of the above seems to contradict what was said in March by Prime Minister and former Minister of Tourism Manuel Marrero: “We have many strengths, we have a very big inventory of tourism products, but we have not been able to take full advantage of them, and we are at a time where we must redesign all tourism products.”

Fortunately, the minister of labour and social security advanced that the list of prohibited activities can be modified and updated, and we hope so this will be so.

They are all cooperatives 

In 2020 there were a total of 5,278 cooperatives in Cuba, of the 421 were non-agricultural and 4,857 agricultural of different types.11 As until 2012 they were the only authorized cooperatives, they have their own history, characteristics and legislation, which makes Cuba the only country that in this way differentiates agricultural cooperatives from those established for industrial and service work. In the Americas, only Cuba, Haiti, and the United States lack a General Cooperative Law.

The most recent legislation related to agricultural cooperatives (CA) is Decree-Law No. 365/2018.12 Armando Nova, economist and professor at the University of Havana, warned that agricultural cooperatives were facing difficulties that compromised their existence.

“In Decree-Law 365, the centralizing character prevails, in the management and dependence on the State Agricultural Enterprise, as well as the secondary role of the National Association of Small Farmers (ANAP) is limited to consultation and not as an important decision-making party.”

In June of this year, a MINAG proposal was presented to strengthen and consolidate agricultural cooperatives. The proposal seeks to address the deficiencies of these productive structures, grant them more autonomy and fill the gaps and legislative contradictions.

It includes, among the solutions, dissolving a group of cooperatives and unifying others, experimentally developing second-degree cooperatives — the union of several primary cooperatives into a higher organization — and creating an Institute for Cooperative Promotion and Development. It has not been specified whether this Institute will cover only agricultural or all cooperatives.

There is not even talk in official circles of expanding cooperativism to include housing cooperatives — social construction of habitat —, renewable energy, child care, care for the elderly and the disabled, and others such as consumer cooperatives, which have been proposed so much by specialists.

What is needed is a General Cooperatives Law in Cuba, prepared with the participation of cooperative leaders and with feedback through consultation processes in cooperatives, which integrates into a single legal body the laws and regulations that govern the entire cooperative ecosystem of the country.

We need true socialist cooperatives if we want the ideology of capitalism to not be reproduced in the private sector. And that the existing cooperatives do not choose to become MSMEs, which is provided by law.

By successive approximations

A decade after beginning the process of “updating” the economic and social model of the country and having created the necessary conditions — as was the monetary reorganization — the State is issuing a series of Decrees and resolutions that will allow a quantitative and qualitative leap in production, employment, relations between enterprises and endogenous development, even in the difficult conditions in which the country finds itself.

The different forms of ownership and management are beginning to be organized and articulated, without so many prejudices and focused on the necessary local development. There is still a long way to go, but as the notable economist, Regino Boti León said, we will arrive “by successive approximations,” but we will get to a more prosperous and socialist country.