Lessons from a bad decision at a troubled time

HAVANA — The reports that have circulated in recent weeks about the situation of private restaurants (“paladares”) in Havana have raised concerns about the government’s commitment to the decisions adopted at the Sixth and Seventh Congresses of the Cuban Communist Party.

Soon thereafter came reports that predicted a halt to the limited opening to the private sector nationwide. The sudden resumption of restaurant licenses on Oct. 23 could be due to several reasons; possibly it was influenced by the reaction of large segments of the population, including the intellectuals.

Let’s examine the facts. Two articles published on Oct. 19 and Oct. 20 — in Cubadebate and Granma, respectively — told of a process that had begun at least one month earlier: to temporarily suspend the granting of new licenses for paladares while the authorities carried out an in-depth investigation of the activities of the restaurateurs active at the time.

It was also announced that last February the restaurants had been notified about several issues, including their closing times. On Nov. 7, Radio Reloj announced that the issuance of new licenses had been resumed on Oct. 24.

Those articles saw the light of day more than one month after government functionaries met for the first time with a selected group of owners of private establishments, according to Havana officials. The late report, by now typical in the Cuban system of information and press, resulted in a wave of conjectures, perceptions and misunderstandings.

The reasons given for the temporary suspension are questionable from several points of view. Let’s examine three elements: the procedure and its arguments; the impact on these activities and the city’s economy; and the broader effects in the current context, in Cuba and abroad.

To begin with, the problems identified are legitimate and not many people object to forceful solutions. But is it necessary to suspend the granting of new licenses while the existing businesses are being reviewed? It seems as if the monitoring of business enterprises were a matter of whim or sudden bursts. Shouldn’t it be an ongoing exercise?

What stands out is the diminished capacity of the responsible institutions to do the monitoring adequately. Will we have to go through similar situations in the future? Also, how was the process handled to maintain a balance between private and public businesses?

The government itself, which declares it seeks a homogeneous treatment regardless of the type of property, has a duty to make sure that these phenomena don’t harm its declared intention.

To stimulate economic activities outside the state-run sector involves rules that differ completely from those we’ve known for the public sector. The potential owners make decisions based on risk-versus-profitability and assume that the regulatory framework will not be substantially modified in the immediate future.

In the Cuban context, the government is probably the most relevant agent, because of the disproportionate power it has over the economy and because it establishes the rules of the game. Any decision alters the existing balance and directly affects the expected benefits. Beyond that, it affects the hiring of new employees, the wages of the existing employees and the purchases from third parties.

Lamentably, there isn’t enough public data on the total volume of business or the links with other activities but, from the point of view of the jobs and the payment of taxes, the figures are not insignificant.

In the capital, more than 260,000 people work in the private and cooperative sectors, including owners and employees. This is more than 25 percent of the entire workforce in the capital and close to 30 percent of the workforce nationwide. Although the amount collected in taxes remains modest, its proportion within the total budget revenue has grown threefold; it is now more than 6 percent.

It is known that many more people depend in one way or another from this sector, in terms of the weight of the informal economy. Therefore, we cannot think that a negative performance by this segment is neutral for the city’s economy or for a good part of its inhabitants.

Although it may seem a contradiction, the public interest is also protected by the protection of the interests of a segment that employs a sizeable proportion of the workforce. What happened recently with private transportation is clear proof of this dynamics. When private transportation was affected, not only were the car owners and their employees affected but also the great mass of Havana residents who use taxis to go to work and engage in other travel.

In a situation that calls for much discretion, such as the one created by a decision of this type, there is a high risk that many projects that under other conditions might have been viable no longer are, because they cannot deliver the profit margins that would justify an investment under the new conditions. The rules of the game should not be changed once the game starts, and the referee should not apply them selectively.

Many people commented about that episode as just another example of the bias against the private sector that persists in broad strata of the government and its policies, although many owners acknowledged the difference in comparison with the 1990s. The standards that regulate this sector are plagued by contradictions that end up by stimulating many bad vices. Two examples bear mentioning.

Great stress has been placed on the importance of obeying the Labor Code, which reportedly covers all employees and establishments, regardless of the type of ownership. At each establishment, employes are required to sign a labor contract with their employer. However, shouldn’t someone have foreseen that perhaps the employer needs to provide a tryout period for his employees, a common practice in the public sector?

Why should the owner sign a contract and protect a license from the very first day without knowing the characteristics of his potential employee? It is known that the rotation of personnel in this segment is relatively high.

Another aspect is the purchases in the informal market. The government itself admits that it has been unable to develop a wholesale market that satisfies the needs of restaurant owners, and at the same time expects them to get their supplies in the retail markets, competing with the rest of the population and affecting their profit margins.

Several restaurateurs have told me that if they complied strictly with all the existing regulations, they could not possibly make any profit, or their profit would be so small that it wouldn’t justify the mobilization of resources, time and energy.

I suppose that the answer for some is simple: if it doesn’t work, well, return the license. Is this really what we need at this time? A problem that affects any sector in the city is a problem for everyone, regardless of the type of ownership. If we want entrepreneurs to pay taxes, first they have to produce.

A final aspect has to do with the domestic and international context. At home, the economy is going through its most delicate moment in more than a decade: zero economic growth (or even negative growth) would not surprise us this year, and clouds are forming over next year. There is a social perception of fatigue and weariness.

By now, many of us believe that, after six years of reforms (10, if we use agriculture as a reference), we should be harvesting the fruits of those reforms. Yet we’re railing against those who — despite the gloomy outlook — have committed valuable resources, betting on a personal project and a future for themselves and their families in this country, a future that includes a large number of young people.

This may seem a minor effect but it isn’t. To convince an important sector of Cuban youth that planning their future in Cuba is possible and worthwhile is in itself an arduous task.

This, however, doesn’t end at our borders. It is well known that winds of change are blowing in U.S. policy toward Cuba. Several groups are waging battle inside the U.S. Congress, the most formidable obstacle to the total and definitive lifting of the U.S. blockade. The resistance in some sectors within the Legislative branch remains strong, for various reasons.

With the arrival of President Trump, this task looms more difficult, if that is possible. Situations like these feed the most reactionary groups in the U.S., and it’s not a question that our domestic agenda should be placed at the disposal of lobbyists in Congress to facilitate their work.

It seems objective to state that tighter controls were an unnecessary step to fulfill the objectives that the government set up for itself. Not only that, they were counterproductive at home and in terms of Cuba’s relations with the world. They’re a real headache from the point of view of public relations.

For those who don’t realize it, we’re now playing in the Major Leagues and these fumbles are costly.

Ricardo Torres is a professor of economics and Cuban economy with the Center for the Study of the Cuban Economy at the University of Havana.