The changing context for the Cuban private sector

Making self-employment more flexible is a decision whose logic has been widely discussed within the framework of the ‘update’ of the Cuban economy. Its principles were already codified in the central political documents, but its effective implementation was only resumed in July 2020 after an intervention by the president of the Republic. The ‘negative list’ approach was briefly commented on by the Minister of Labor and Social Security in September of that same year. During these long months, the quintessential questions have been when and exactly how? Many have wanted to see by way of the ‘list’ a declaration of principles from the authorities. Perhaps they are right. The following analysis focuses on the economic implications of this step and its ramifications to society.

Based on what has been publicly disclosed, some aspects deserve specific comments. In the first place, the direct comparison between the 127 categories allowed so far and the set of possibilities offered by a relatively narrow negative list (although with notable absences) can be misleading. The previous one was basically a collection of simple trades. The fact that the scope of the business is determined by the characteristics of the project creates conditions for the emergence of more complex undertakings, which can potentially involve a wide variety of trades and professions. It is not a small modification that sets a positive precedent for other interesting developments with SMEs and cooperatives.

Secondly, although some activities have been banned from the provisional list (which we will return to later), it seems sensible to assume that even under these restrictions, opportunities for professionals expand, this being a long-standing demand. On the other hand the business establishment process contains interesting improvements. According to the authorities, the approval of licenses must be done “ex officio”. That is, if the applicant meets the requirements, his project must be approved. This is of great importance in reducing the discretion of public sector officials, and this is key to ensuring agility and shielding the process against corruption. Finally, the proposal to use the concept of the “One Stop Shop” is a success. Although it is convenient to remember that the fundamental qualitative leap does not lie in the delivery of the documents in one place but in reducing the amount of necessary permits to the essential minimum, and in that the relevant information and data are required without redundancy.

However, to understand its true scope, it is essential to place this decision in the more general framework of its significance for the reform and economic development of the nation. Many analysts have drawn attention of this step’s connection with the long-awaited possibility of establishing true private companies with national capital. The differences between this and what is proposed for ‘self-employment’ are not minor. The in-depth analysis of the implications of the creation of SMEs is not the object of this work, suffice it to say that it is a higher level of formalization of the productive activity whose implications range from the hiring of the workforce, integration of the productive fabric, to the possibilities of mobilizing capital for investment. The decision to expand the exercise of self-employment is neither equivalent nor does it replace that other step. In fact, it would be best if the time between one and the other was short. The brevity in this case would show the determination to accelerate the reform and the economic recovery, together with the emergence of a true strategic conception on the productive transformation.

Controversial on the ‘list’ is its own definition. The nature of the prohibited activities is an essential feature of the proposal, and it does have implications for its economic impact. There are two structural features of the Cuban productive system that have to be substantially transformed in the coming years if a sustained increase in productivity and a better functioning of the markets are to be hoped for. These are the composition of the business system according to the size of the units, and the productive specialization.

According to the International Labor Organization (ILO), in middle- and high-income countries, companies with up to nine (9) workers represent 32 to 38 percent of total employment, while another 42 percent work in units that have between 10 and 49 employees. This panorama contrasts enormously with the Cuban context, particularly in the public sector, which is in urgent need of a restructuring that cannot be postponed. The new framework for self-employment must be calibrated against the need to facilitate this rearrangement.

On the other hand, specialization of services is a condition that will continue to strengthen beyond any improvement in industrial and agricultural performance. The first stage of that transition has already been completed, which has ended in tourism, universal social services and export of professional services (mostly health). The next stage requires the deployment of more complex services integrated into the productive fabric and with a projection towards foreign markets. This will require the incorporation of as many professionals as possible, especially those with the highest qualifications. This, along with the professions that nurture the digital age. There is no going back, or you are digital, or there are no development opportunities in the 21st century. Unlike other countries that undertook similar transformations, Cuba will not have a young and growing workforce, but will depend essentially on the specialization of its workers. Productive development policy has to recognize these nuances and be designed accordingly.

The experience of the last decade is overwhelming. Despite the heavy web of restrictions and prohibitions, almost all examples of innovative productive transformation emerged in the private sector. And this included both traditional sectors and the high-tech and creative industries. Based on this, too many activities that are key to unleashing the dynamics described above remain forbidden. An economy whose productive fabric becomes denser and more varied requires a large number of lawyers and accountants, architects and engineers, or economists. If there is a sector dominated by self-employment and small-scale businesses, it is that of professional and technical services. Much worse would be to prohibit, for the mere fact of protecting vested interests, naturalizing the lack of competition. A diverse and ever-changing tourism industry is one that will always pay higher dividends.

In addition to the necessary reduction of prohibited areas, other aspects must begin to figure more prominently on the transformation agenda (which does not necessarily exist). Among them would be the definition and scope of autonomous work with specific regulations; the need for policies towards the private sector to distinguish between subsistence ventures and dynamic enterprises; the design of a coherent strategy towards the private sector that is fully integrated into development plans (this is not about “incorporating” the sector into the national economic plan); recognition of obvious differences between employee and owner; the convenience of establishing formal channels of communication with this sector; the role of the banking system in accompanying the growth of enterprises; as well as the application of the legislation containing social rights and the protection of the environment.

This list of needs far exceeds the clear omissions and ambiguities of the documents that provide political or even practical support for these changes. Therefore, perhaps it is a good time to consider the need to host a more complex and specific political and technical debate than the one we have had so far.