Sunday, December 24, 2017

Under Cover of the Sonic Weapons Attack: The Cuban Private Sector as Collateral Damage as Cuba Retreats Toward Central Planning

(Pix Credit: Cuba tightens regulations on nascent private sector )

Since the end of the 7th Congress of the Cuban Communist Party (PCC) it has become increasingly clear that the conservative elements of the Cuban state apparatus have been concerned about economic reform.  The source of their concern is not that economic reform within a Marxist Leninist context is not working, rather their alarm has grown precisely because even in Cuba is has become apparent that Markets Marxism might actually work (On Markets Marxism see, HERE).

This post considers the recent efforts by the Cuban state to freeze movement toward opening the private sector in the shadow of the Affair of the Sonic Weapons Attack and of the resetting of the relationship between the U.S. and Cuba.  It appears that with the movement toward tightening the aperture through which U.S.-Cuba relations were developing, and the loudly trumpeted American efforts to focus its economic relations on the Cuban private sector, Cuban reforms in that area, tentative at best, are now threatened. 

In the Cuban Communist Party 7th Congress’s Conceptualización del modelo económico y social Cubano de desarrollo socialista: Plan nacional de desarrollo económico y social hasta 2030: Propuesta de vision de la nación, ejes y sectores estratégicos, the PCC posited that development can be better managed by rejecting the central role of markets, and substituting state planning in its place, taking an all around view of economic planning as inextricably bound up in social, political and cultural progress of a nation. And, indeed the Conceptualización made it clear that the reforms that had been implemented slowly especially since 2011, would be substantially constrained by the state (e.g., here).  Even under the best circumstances, then, the conception of the space for the private sector in Cuba was as a supplement to the state sector economy.  More importantly, the functioning of the private sector was to be heavily regulated by the state--from significant review and approval of business plans, to the determination of sales and pricing, to the continued control of wholesale markets, and the substantial limitation of the scope of that market to the consumer retail area (especially in the tourist sector) to be operated by sole proprietors or cooperatives (but to which operation in corporate form would be prohibited).

But still there was reform and a small aperture for opening up. And the private sector modestly thrived, even within its constraints (see, e.g., here, here, here, and here). But clouds appeared on the horizon with the transition from the Obama to the Trump Administration (see, e.g., here, and here).  "On Aug. 1, the Cuban government announced an abrupt halt to issuing licenses for 27 occupations in the island’s nascent private sector. After promising to advance economic reform “without haste, but without pause,” Raúl Castro’s government has now called for a break." (Here). Almost immediately thereafter,  "One of Cuba’s fastest-growing cooperatives said on Friday it had been ordered by the government to close, the latest sign that Havana is putting the brakes on its ambitious plans to reform its centrally planned economy. . . . . . Some analysts say Communist Party hardliners may fear that if any entity becomes too economically powerful it could threaten the ruling party’s power. The law on cooperatives allows for an unlimited number of members." (here).

On 21 December, the other shoe dropped.  Marc Frank, reporting for Reuters wrote that "A government official announced tighter regulations for Cuba’s private sector on Thursday as part of a review of market reforms stemming from complaints about excess accumulation of wealth, tax evasion and other practices." (Cuba tightens regulations on nascent private sector ).  Those reforms appear to produce greater regulation on business and to ensure that, indeed, they remain a supplement to the economy and strictly tied to the provision of local services at the retail level. "Private cooperatives will now be limited to the province where they were located and levels of income capped for their leaders at no more than three times the average wage of members . . . Business licenses will be limited to a single activity per entrepreneur . . . Small business tax policy was also under review." (Ibid). 

The timing and extent of these developments ought not to be read in isolation.  

First, it bears emphasis that the retreat that they represent were already announced during the course of the 7th PCC Congress. In the largest sense these moves--to freeze movements towards opening up the private sector--are consistent with some trajectories in Cuban politics.  It has been clear since the 7th PCC Congress that the elite has reconsidered its willingness to move toward Asian style Markets Marxism.  They have reaffirmed both the supremacy of central planning and the subsidiary role of the private sector.  They have also affirmed that even the private sector will not be markets based but will in any case be heavily regulated.  It should also not be forgotten that the Government and PCC had consistently referred to much of the elements of reform as an "experiment" (e.g., here).  

Second, the success of the private sector, both in terms of its magnitude and scope, has become a threat to the central planning architecture to which the state is committed. More importantly, they appeared to challenge the authority of the state organs themselves.  Worse, the ability of the private sector to generate income as quickly and consistently as it had done served as a constant economic rebuke to political orthodoxy. An autonomous and prosperous private sector could pose a challenge to the authority of the CCP itself--at least ot the thinking of those reared in the "old ways" thinking of European Marxism.

Third, more importantly, it appeared to potentially threaten to become a driving force of economic change in Cuba--and therefore posed the potential to become a political threat. In their heart of hearts, it appears that what the drivers of state policy wanted was for Cubans to migrate to a private sector where they would earn substantially the same as they had in state service (but without the state having to bear the expense). Any deviation from this basic premise would have produced crisis.That is one way to understand the tenor of reforms since 2011--the notion that the preservation of the conception of relative wage rates was central to the reforms--Cuban elites continued to reject the notions central to Markets Marxism, that is a toleration of the central contradiction of uneven distribution of wealth (now highlighted by Xi Jinping in the 19th Chinese Communist Party Congress October 2017 ("As socialism with Chinese characteristics has entered a new era, the principal contradiction facing Chinese society has evolved. What we now face is the contradiction between unbalanced and inadequate development and the people's ever-growing needs for a better life." Report to the 19th CPC Congress October 2017).

Fourth, the crisis produced became substantially political in the face of the deteriorating relations with the United States.  A key element  that may have hastened the decision to move in the direction of curtailment and constriction could have been the anticipation of the new trade and travel restrictions that were to be imposed by the U.S. (New Cuba Travel and Trade Regulations Issued--Targeted Shrinkage of the Scope of Normalization Continues).  The reason is simple and fair straightforward.  The new American regulations target constituted a direct assault on the economic activity of state enterprises (principally those controlled by the military and intelligence apparatus--a substantial fraction of the public economy). Recall the tenor of President Trump's speech announcing the new policy: "My action today bypasses the military and the government, to help the Cuban people themselves form businesses and pursue much better lives. " (HERE).

Fifth, one big consequence was what appeared to be U.S. efforts to steer the Cuban economy by steering U.S. spending to the private sector.  Recall that the new regulations identify individuals, and enterprises that are now on a transactions blacklist and that the thrust of the rules are meant to support private business. From the perspective of a central planning economy the consequences was clear--the United States was seeking to project its power to control (or influence) an important sector of the Cuban economy. That could not be tolerated by a leadership worried about retaining control during the start of a period of political transition as the "históricos" succumb to the biological imperative of old age. The "truth" of this connection was irrelevant--it was the perception that might drive policy.

Sixth, all of this played out against the increased suspicions and the opaque agendas that are tied into and constitute the Affair of the Sonic Weapons Attack. The U.S. National Security Strategy (4 Dec. 2017) speaks to the need to "isolate governments that refuse to act as responsible partners in advancing hemispheric peace and prosperity. We look forward to the day when the people of Cuba and Venezuela can enjoy freedom and the benefits of shared prosperity, and we encourage other free states in the hemisphere to support this shared endeavor." (NSS, p. 51))(NSS discussed generally HERE)).  Though there is still uncertainty within the U.S. scientific community (see, e.g., here)  the U.S: continues to assert that the attacks were deliberate and that Cuba bears responsibility (e.g., here).  The connection between these events and actions, however, remains unexplained.

Marc Frank's reporting from Cuba follows:

Cuba tightens regulations on nascent private sector
Reporting by Marc Frank; Editing by Tom Brown
December 21, 2017
HAVANA (Reuters) - A government official announced tighter regulations for Cuba’s private sector on Thursday as part of a review of market reforms stemming from complaints about excess accumulation of wealth, tax evasion and other practices.

The number of self-employed Cubans has more than tripled to around 580,000, about 12 percent of the total workforce, since President Raul Castro in 2010.

In August, however, Cuba suspended issuing new licenses for cooperatives and certain private-sector activities from bed-and-breakfasts to restaurants until it had implemented new measures to curb wrongdoing such as tax dodging.

Private cooperatives will now be limited to the province where they were located and levels of income capped for their leaders at no more than three times the average wage of members, state-run media quoted Marino Murillo, head of the Cuban Communist Party’s reform commission, as saying on Thursday.

Business licenses will be limited to a single activity per entrepreneur, he said. Currently some restaurant owners also run bed-and-breakfasts or cafeterias and cooperatives often operate in more than one province. This would no longer be possible.

In Cuba, only certain types of small businesses and private activities are allowed.

Murillo, speaking to a closed-door session of the National Assembly, was quoted as stating those activities would be reduced and in some cases consolidated, for example manicurist would now fall under a general expanded beauty salon license.

Small business tax policy was also under review, he said.

The measures come even as Cubans say their businesses are already suffering from travel restrictions and warnings issued by the Trump administration.

The government earlier had also definitively stopped issuing licenses for wholesale and retail sellers of agricultural goods, vendors of CDs or DVDs, and operators of recreation equipment.

The backtracking on the private sector hints at unease among some in the ruling Cuban Communist Party that free market reforms may have gone too far, amid a broader debate about rising inequality on the island.

The average state monthly wage is $30, the same sum a B&B owner can charge visitors for a night’s stay.

Castro, speaking to the National Assembly in July, said the government had detected wrongdoings in the sector, from tax evasion to the use of goods of illicit provenance, that it needed to curb.

“We are not renouncing the development of the self-employed sector,” said Castro. “However, it is necessary to ... resolutely confront the illegalities and other deviations from the established policy.”

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