A new phase for Cuba’s economy

HAVANA – The recently announced measures for self-employed workers in Cuba are another step forward for the private sector. There are nine measures whose common denominator is the relaxation of several restrictions that hinder the growth of the sector. It is striking that they have been presented as part of the “improvement” of this form of employment, when initially they were introduced as major restrictions.

Each of the measures presented before the referendum on February 24 lacks the corresponding legal norm. So the evaluation of its scope can be considered somewhat hasty. However, we should recognize the communicative effort made to discuss its content so there can be no surprises once they are implemented.

The inclusion of five new categories allowed and the extension of the scope of others reinforces this sector as an employment option. On this occasion, all proposed changes in the scope of various activities expand and make their operating conditions more flexible. However, the focus remains on the detailed and narrow description of the approved categories. The pending transformation in this scheme is a list reduced of categories that are not allowed in the private sector, which would facilitate administrative work and would constitute an unprecedented stimulus to the development of the productive forces. Also, the authorization of the employment of up to two real estate agents only confirms what is common practice in the exercise of this activity. It is almost certain that this type of example abounds in Cuba’s self-employment (cuentapropismo), which only stimulates unnecessarily illegal activity. 

Another group of measures aims to strengthen municipal governments as a fundamental level in decision making regarding the activities that are carried out in that territory. This is consistent with the declaration of intent of the new Constitution. It also reduces the pernicious vertical flow that affects all administrative processes. Each time that progress is made in this direction, the link between the citizens and their local government is strengthened, and the competence of the corresponding authorities begins to take on a greater importance, as they are empowered to decide on aspects that directly affect the economy of the region and the life of the people. It is a remarkable political dynamic in the Cuban case, which appears will be reinforced in the months and years to come.

Taking all of this into account, from the point of view of the expected economic impact, the most far-reaching changes are the possibility of signing contracts for the sale of goods and services with any entity located in the national territory; the possibility for state companies to sell their surplus productions to this segment; and the elimination of the (optional) hiring requirement of close relatives.

The first two in particular are the most advanced provisions in relation to self-employment that have appeared since it became part of the economic panorama in 1993. Once in practice the scope and potential will depend on the preferences of those who manage the different entities, although there seems to be a tendency to conceive of relations with the non-state sector as a characteristic of the Cuban model.

Both constitute far-reaching transformations that can make a substantive contribution to overall economic efficiency and, in particular, to the internal integration of the economy. The latter is one of the most serious structural problems suffered by the Cuban economy, described in the corresponding studies since at least the middle of the last century.

The predominant approach to this problem for a long time has been to do so from the most important sectors of the economy. That is to say, the fact that productive linkages are weak responds to the fact that the most dynamic activities are incapable of dragging other sectors. The truth is that the problem has more to do with an endless list of restrictions and prohibitions that inhibit the horizontal relationships between entities of different denominations, which has caused the Cuban domestic market to be completely fragmented. This stimulates inefficiency in the sector, such as the coexistence of idle capacities in certain sectors with excessive dependence on imports in others (and ignoring other well-known factors).

If this change is tied to a new alternative wholesale market for these businesses and the normalization of the monetary-exchange system, the conditions would be created to gradually stabilize the rules of the game in the productive sector, a necessary condition to stimulate efficiency and the use of domestic capacities.

The power of these measures should not be underestimated. But the context in which they take place is even more interesting. Just eight months ago we were discussing a group of highly restrictive measures with a negative influence on self-employment, so it is surprising that the government’s approach to the sector has changed. In December, many of those resolutions were revoked, certainly the most damaging, except for the  transportation ‘experiment’ in Havana, which only further deteriorated the provision of a key service already operating in precarious conditions. And now we have these new decisions.

This only helps to highlight the challenges facing the Cuban government. Although the most recent changes are welcome, almost two years have been lost since August 2017 (when the suspension of the granting of numerous licenses took place) in a meaningless discussion about the merits and scope of self-employment that should have been settled by now. Those measures were adopted in spite of what common sense called for and it was no secret that they were very unpopular. Regrettably, self-employment and the non-agricultural cooperatives became the scapegoats of everything that had not gone well with the ‘updated’ economy. Or maybe it was just a smokescreen to divert attention from major problems.

Few would doubt that the proposals made in 2011 had the potential to positively transform the country’s economic outlook. But one should not make the mistake of underestimating the seriousness and nature of the problems that our economy continues to drag forward. Five years of partial and intermittent application of an already limited program of transformations were not going to overcome these weaknesses. And exactly when more needed to be done, we backed off. They say that crises originate their own solutions. The current context is propitious for Cuba to look inward again and find real solutions to its problems. Although it has been said often it is important to remember that development is an essentially endogenous process.

Cuba’s new Constitution contains very powerful provisions in the economic sphere. Now that the debate for its approval is over, it is important to take full advantage of these new provisions.

Dr. Ricardo Torres is a professor of economics at the University of Havana.