(Pix Credit: Nora Torres,"Cuba imposes more taxes and controls on private sector and increases censorship on the arts," The Miami Herald 10 July 2018)
On July 14, 2018, Cuban Communist Party (PCC) authorities announced substantial changes to its 1976 State Constitution (Visión hacia el presente y el futuro de la Patria Aspectos principales del Anteproyecto de Constitución). The changes represent an effort by the PCC apparatus to build the changes it had instituted since 2011 into the formal structures of the governmental apparatus of the state (A New Constitution for Cuba--Principles and Reform). The reforms are being reviewed during Cuba's 7th Plenary Session of the PCC Central Committee (Tele-Sur). Once finalized will be delivered for consideration and approval by the state apparatus (scheduled for 21 July 2018) and eventually submitted to the masses for discussion and popular affirmation (Granma).
The Western press focused on several of the changes--principally the institutionalization of free markets and private property ownership. The BBC reported that "Recognising private property could potentially mean more protections under law for private entrepreneurs - and foreign investors."(BBC). Others noted that "The constitution does, however, create new recognitions of the free market and private property in Cuban society, and creates a new presumption of innocence in the justice system." (CTV News; Los Angeles Times; US News&WorldReport). Still others declared that "Cuba is set to officially recognise the free market and private property for the first time under sweeping reforms to its constitution intended to boost the island’s economy." (Independent). Reuters was more careful, noting with respect to enshrining market reforms that these "could mean enhanced legal protections for Cuba’s fledgling entrepreneurs, and foreign investors too, even though Granma said the constitution reaffirmed that central planning and state enterprise are the pillars of the economy overall." (Reuters).
This post briefly sketches the evolving understanding of free markets--and the space reserved for its functioning within the political economy of Cuba--that emerges from the actual practices of the Cuban state in the last several months. It is this practice that will likely inform the meaning and utility of any markets protective language in the proposed Cuban constitution. These suggest a very different, and quite modest and collateral understanding of markets and market mechanisms in Cuba from understandings of markets in other places. More importantly, it also elaborates the means by which markets are subsumed within a centrally planned economy. This serves as a caution for those who might be tempted to read far too much into the revisions of the proposed Cuban constitution. This post and those that follow form part of the Coalition for Peace & Ethics's Technical Assistance Project--Reforma de la Constitución del Estado cubano 2018/Reform of the Cuban State Constitution 2018.
The opening of free markets in Cuba does not carry with it the same implications and understandings as it might in the West. And, indeed, the PCC has developed a very specific meaning to the term that suggests something quite different from the term as understood and practiced in the West (or in other Marxist Leninist states). Those differences are evident not merely in the key conceptual documents that outline the premises of Cuban Marxist Leninist organization and practice, but also in the actual operationalization of the premises extracted from theory.
In the Conceptualización del modelo económico y social Cubano de desarrollo socialista the PCC explained the notion of a "regulated market" as a rejection of the "free market" concept of the West. Regulated markets are understood as collections of market mechanisms that serve central planning strategies.
El “libre mercado” no existe realmente; no hay competencia perfecta; existen los monopolios y oligopolios que controlan los mercados. . . . En consecuencia, el Modelo enmarca y regula el mercado dentro de sus finalidades estratégicas, mediante diferentes medios, como parte del perfeccionamiento del sistema de dirección planificada de la economía, de modo que sus leyes no desempeñan el papel rector en su funcionamiento. [The "free market" does not really exist; there is no such thing as perfect competititon; there are the monopolies and oligopolies that control markets. . . . Consequently, the Model frames and regulates the market within its strategic purposes, through different means, as part of the improvement of the planned management system of the economy, so that its laws do not play the leading role in its operation, ] (Conceptualización, Definitions, p. 31 ¶ 18)
As a consequence, an appropriately implemented market mechanism in Cuba "requires the development of culture on the role, operation, limits and forms of state and social control over the market. (Ibid., "Se requiere el desarrollo de la cultura sobre el papel, funcionamiento, límites y formas de control estatal y social sobre el mercado").
These theoretical premises have been much in evidence since 2011, but especially after December 2017. It is sometimes easy to forget that the great advances of the Lineamientos after 2011 were quite carefully characterized as experiment, subject to change or abandonment, if they did not meet their objectives.
And, indeed, certain reforms, particularly the development of labor cooperatives in the non state sector outside of agriculture, were characterized as experiments (Report on Progress of Implementing the Leneamientos ¶ 15). Likewise, the Lineamientos were understood to describe a work in progress through which the theoretical objectives of economic planning could be realized, including in the construciton fo regulated markets (Ibid, § 20 ("Consolidar el marco regulatorio e institucional y el resto de las condiciones que permitan avanzar en el funcionamiento ordenado y eficiente de los mercados en función de incentivar la eficiencia, la competitividad y el fortalecimientodel papel de los precios")). And, indeed, the challenge for the PCC and its model of the Cuban political economy extends beyond markets and private enterprise, to the accumulation of wealth and the possibility of the accumulation of wealth. (The issuance of new business licences comes with oppressive regulations ("Indeed, the ruling Communist party recently added a ban on the accumulation of wealth to the one on property already in its reform plan."))
But it is in the actual operationalization of the provisions of the regulated market that one sees the outline of the structure and character of private markets in Cuba. In August 2017, Cuban authorities put the brakes on the expansion of the private sector when it announced it would no longer issue licenses for some crucial tourist sector activities. This action implicated both the experimental nature of the market sector reforms and the importance of ensuring that these private markets could operate only under close state supervision and subject to its management in the servoce fo the planned economy.
Those new regulations were finally issued in July 2018 (Gaceta Oficial No. 35 Extraordinaria de 10 de Julio de 2018). They focused both on the correction of irregularities (as these were understood from the perspective of the objectives of the Conceptualización), but perhaps more importantly, on tightening the state's management of the markets within which these licensees could operate--including issues respecting pricing and managerial practices. "The government announced that it will start issuing licenses to open new businesses — frozen since last August — but established greater controls through a package of measures intended to prevent tax evasion, limit wealth and give state institutions direct control over the so-called cuentapropismo or self-employment sector." (Cuba imposes more taxes and controls on private sector and increases censorship on the arts).
The new rules suggest the extent to which central planning principles have been embedded in the construction of the private sector--even a private sector as small and peripheral as that envisioned within Cuban policy. "Cubans who run private restaurants known as paladares, for example, will not be able to rent a room in their home to tourists since no citizen can have more than one license for self-employment."(Cuba imposes more taxes and controls on private sector and increases censorship on the arts). But in the porcess, the Cuban state also modified the categorization of occupations subject to a single license, effectively managing the ability of individuals to create certain businesses.
These theoretical premises have been much in evidence since 2011, but especially after December 2017. It is sometimes easy to forget that the great advances of the Lineamientos after 2011 were quite carefully characterized as experiment, subject to change or abandonment, if they did not meet their objectives.
Parte importante de los cambios se han promovido a través de un procedimiento que empieza a ser habitual en Cuba: se hace primero un experimento, se comprueban los resultados, se ajusta la propuesta y después se generaliza mediante la conformación y aprobación del marco legal. Es en el terreno propiamente de las relaciones económicas donde se concreta la mayor parte de las modificaciones que han tenido lugar en Cuba en el período 2011-2014. Así, ha emergido un creciente sector de trabajadores por cuenta propia, esta vez con “cuentapropistas” que pueden contratar fuerza de trabajo; se ha dado una importante transformación en el sector agropecuario que tiende a fortalecer y desarrollar entidades cooperativas y no estatales de gestión (incluyendo no sólo mini-industrias agroalimentarias); se volvió a impulsar el proceso de ”perfeccionamiento empresarial” en varias instituciones de producción y servicios estatales, el que en ocasiones implica nuevas modalidades de organización y dirección de las entidades productivas; y se transforman en cooperativas disímiles entes de prestación de servicios comerciales, técnicos y personales a la población que se estructuraban en empresas provinciales y municipales de propiedad del estado. (Antonio F. Romero Gómez, "Transformaciones económicas y cambios institucionales en Cuba" in El cambio económico de Cuba en perspectiva comparada 31, 36 (Richard E. Feinberg and Ted Piccone, eds., Brookings, 2014)) [Important parts of the changes were promoted through a procedure that is becoming habitual in Cuba: an experiment is made first, the results are checked, the proposal is adjusted and then it is generalized through the conformation and approval of the legal framework. The field economic relations saw most of the modifications that have taken place in Cuba in the period 2011-2014. In this way a growing sector of self-employed workers has emerged, this time with "self-employed workers" who can hire work force; there has been an important transformation in the agricultural sector that tends to strengthen and develop cooperative and non-state management entities (including not only agro-food mini-industries); the process of "entrepreneurial improvement" was again promoted in several state production and service institutions, which sometimes involved new forms of organization and direction of the productive entities; and provincial and municipal enterprises are transformed into distinct cooperative entities of commercial, technical and personal services.]
And, indeed, certain reforms, particularly the development of labor cooperatives in the non state sector outside of agriculture, were characterized as experiments (Report on Progress of Implementing the Leneamientos ¶ 15). Likewise, the Lineamientos were understood to describe a work in progress through which the theoretical objectives of economic planning could be realized, including in the construciton fo regulated markets (Ibid, § 20 ("Consolidar el marco regulatorio e institucional y el resto de las condiciones que permitan avanzar en el funcionamiento ordenado y eficiente de los mercados en función de incentivar la eficiencia, la competitividad y el fortalecimientodel papel de los precios")). And, indeed, the challenge for the PCC and its model of the Cuban political economy extends beyond markets and private enterprise, to the accumulation of wealth and the possibility of the accumulation of wealth. (The issuance of new business licences comes with oppressive regulations ("Indeed, the ruling Communist party recently added a ban on the accumulation of wealth to the one on property already in its reform plan."))
But it is in the actual operationalization of the provisions of the regulated market that one sees the outline of the structure and character of private markets in Cuba. In August 2017, Cuban authorities put the brakes on the expansion of the private sector when it announced it would no longer issue licenses for some crucial tourist sector activities. This action implicated both the experimental nature of the market sector reforms and the importance of ensuring that these private markets could operate only under close state supervision and subject to its management in the servoce fo the planned economy.
The Cuban government on Tuesday temporarily stopped issuing licenses to privately operated restaurants and lodging establishments catering to tourists, among other businesses, in an effort to regulate enterprises run by self-employed people, state media reported.Part of the reasons for this action was the need to assert greater state control, and a dissatisfaction with the state's ability to ensure appropriate taxation. This followed an old pattern in Cuban policy toward opening up.
The measures, published in the Official Gazette of the Republic, seek to end illegal activities and "deviations," as part of a "systematic (process) of review and improvement, undertaken to correct deficiencies ... (in) working for one's own account" on the island, an area in which more than a million Cubans make their livelihoods, according to the state-run daily Granma.
As part of the new restrictions issued by the Cuban Labor and Social Securitgy Ministry (MTSS), the public is also advised that the granting of licenses in several sectors will also be halted, including wholesale vendors of agricultural products and street vendors. (Cuba stops issuing licenses for private restaurants, lodging).
In 2010, the Cuban government began allowing 201 types of self-employment, from child's party clown to real-estate agent. It started issuing licenses for other categories — like restaurant and bed-and-breakfast — that were approved by Castro's predecessor and brother Fidel during Cuba's post-Soviet crisis in the 1990s, then frozen again for years. (Castro Freezes Cuban Private Sector, Throws Future in Doubt)."MTSS First Deputy Minister Marta Elena Feito said that the new measures do not mean "a move backward in the development of (private economic) activity," but rather the move is "intended to consolidate the organization and control of private labor, such that it may continue to move forward in an orderly and efficient manner."" (Cuba stops issuing licenses for private restaurants, lodging). The state promised new regulations to combat illegalities which remained unissued by February of 2018--placing substantial pressure on the ability of the small private sector to attract investment and to grow (Castro Freezes Cuban Private Sector, Throws Future in Doubt (""There's great uncertainly," economist Omar Everleny Perez said. "They announced that there'd be a new law, but it hasn't come out and no one dares to start a new enterprise without knowing what it will say."")).
Those new regulations were finally issued in July 2018 (Gaceta Oficial No. 35 Extraordinaria de 10 de Julio de 2018). They focused both on the correction of irregularities (as these were understood from the perspective of the objectives of the Conceptualización), but perhaps more importantly, on tightening the state's management of the markets within which these licensees could operate--including issues respecting pricing and managerial practices. "The government announced that it will start issuing licenses to open new businesses — frozen since last August — but established greater controls through a package of measures intended to prevent tax evasion, limit wealth and give state institutions direct control over the so-called cuentapropismo or self-employment sector." (Cuba imposes more taxes and controls on private sector and increases censorship on the arts).
The new rules suggest the extent to which central planning principles have been embedded in the construction of the private sector--even a private sector as small and peripheral as that envisioned within Cuban policy. "Cubans who run private restaurants known as paladares, for example, will not be able to rent a room in their home to tourists since no citizen can have more than one license for self-employment."(Cuba imposes more taxes and controls on private sector and increases censorship on the arts). But in the porcess, the Cuban state also modified the categorization of occupations subject to a single license, effectively managing the ability of individuals to create certain businesses.
The "rearrangement" of self-employment, as the new measures were framed in the official media, reduces licenses by lumping together various elements of one industry while limiting another. For example, while there would be only one license for all beauty services, permits for "gastronomic service in restaurants, gastronomic service in a cafeteria, and bar service and recreation" were separated — meaning that one can own a restaurant but not also a bar. (Ibid.).The possibilities for confusion, the traps for the unwary, and the administrative discretion built into the system, ensure strong and continuous state management of non state sector economic activity. The state sets prices and the disaggregation of services within restaurants (e.g., autonomous bathroom attendants)(Ibid). The consequences were nicely described in recent reporting by Marc Frank. which follows.
The issuance of new business licences comes with oppressive regulations
Marc Frank
Financial Times15 July 2018
Niuris Higueras is pleased that more Cubans will have the chance to pursue the “dream” of private enterprise on the communist island, after the government last week said it would resume issuing business licences, including for bars.
But the proprietor of Atelier, one of Havana’s most popular restaurants, will have to wait a little longer to fulfil her own dream of attracting more patrons and building a new cafeteria. On top of a drop in US visitors, the government is now restricting restaurants to 50 customers, and owners to a single business.
“These limits are not how the business works,” she says. “One day you may have a few clients and the next a chance to have more than 50. It has to change. I continue to dream and to hope.”
Cuba announced last week that it would resume issuing licences for private eateries, bed and breakfasts, taxi drivers and some other activities in December, ending a 16-month freeze.
But it also issued 129 pages of new regulations aimed at limiting profits and increasing tax revenues. Entrepreneurs will be limited retroactively to a single business, restaurants to 50 seats and bed and breakfasts can expect more inspections and perhaps limits on the number of rooms they can rent out.
The measures are the latest twist in the country’s on-off identity crisis over the accumulation of capital, which it has grudgingly allowed in an effort to ease its post-Soviet economic woes.
Foreign currency revenues have dropped precipitously since the fall in oil prices triggered the economic implosion of benefactor Venezuela in 2015, resulting in cuts in imports and energy allocations to state entities, late payments to suppliers, economic stagnation and sporadic shortages.
Private restaurants like Ms Higueras’ were allowed just 12 seats in the 1990s, followed by a decade-long freeze on licences. Then seating was upped to 20 and then 50. Restaurants had recently worked around that limit by taking out a second licence. The new rules prohibit that.
Cuba’s “non-state sector” is a hodgepodge of small business owners, their employees, and individuals selling their wares on the open market. It has grown from 157,000 in 2010 to 592,000 or 13 per cent of the labour force.
There are around 2,200 private restaurants in the country and only 7,000 entrepreneurs hold more than one licence.
The country has begun debating an overhaul of its 1976 constitution, a draft of which includes for the first time since the early days of the Revolution recognition of markets and private property, according to the Communist party Granma newspaper.
Observers breathed a sigh of relief that under the new regulations the private sector would not meet the same fate as agriculture, where market reforms begun in 2010 by former President Raúl Castro to “modernise” the Soviet-style command economy have been scrapped in favour of the old state monopoly on food distribution.
A European diplomat said the good news was that “they have to accept the small businesses whether they like them or not. They need the tax income and have become indispensable.” The bad news, he said, was that “the best solution they can come up with is adding more and more regulations.”
“These measures are more political then economic. They aim to appease the more conservative elements that are preoccupied by the expansion of the sector and inequalities,” said Pavel Vidal, a former Cuban central bank analyst who now teaches at the Universidad Javeriana Cali in Colombia.
Indeed, the ruling Communist party recently added a ban on the accumulation of wealth to the one on property already in its reform plan.
Paul Hare, a former British ambassador to Cuba, described the new rules as “an unsurprising but still breathtaking picture of the scope and footprint of suffocating contemporary Cuban bureaucracy.”
“The tentacles of the state are reaching ever more into every aspect of self-employment.”
Businesses often resort to the black market due to huge mark-ups at state-run retail shops and erratic supply. A government pledge to open wholesale outlets has not materialised.
To better track income for tax purposes, the small businesses will now have to open special bank accounts and carry out the bulk of their business through them.
“They are just trying to squeeze us more,” said the owner of a snack shop in a gritty barrio far from the tourism sector of Havana.
“The state stores are too expensive and besides usually have nothing you are looking for. If I followed the rules I would have no shop and Cubans no pizza they could afford,” he said, predicting the state, “which can’t manage garbage collection” would not be able to force him into line.
Many of the 6,000 drivers of Havana’s car museum on wheels, who openly operate group taxis with black market fuel as a trade-off for relatively low fares, expressed anger and anxiety over the new rules.
They will be forced to purchase a minimum amount of fuel from state gas stations with huge mark-ups, pay a monthly quota on estimated earnings and a regulation could limit their licences to municipalities or provinces.
This is a disaster. It is all a screw job. They want to control everything and in the end nothing changes,” said the driver of an almendrone, or old US car used as a group taxi by Cubans.
When asked about another rule that forces luxury vehicles catering to tourists to link up with a state agency, the owner of a shiny pink 1950s US convertible outside a downtown Havana hotel put out his middle finger and mouthed the words in English “F*** them”.
__________
The emerging realities of the market thus suggest the substantial managerial control by the state of the private sector, and its reduction to a complementary element of a centrally planned economy. And it suggests that in developing this sector, the Cuban state will not deviate very far from the political theory developed in the 7th PCC Congress. In Cuba markets do not set prices, they have limited ability to innovate in the absence of governmental approval, their operations are overseen to a large extent by the state sector, and the ability of individuals to develop businesses is severely restricted by a license system that severely impedes business growth without approval. Thus, when the Cuban constitution is eventually amended to provide a space for the private sector s and markets--there will be no mistake in its meaning. These changes do not point to the eventual establishment of a market economy but rather its opposite. Rather it points to an experiment in which the object is to demonstrate that markets best serve society only when they complement the centrally planed economy. Under the new constitution--markets are not free, they are managed and survive only to the extent that markets serve the state (e.g., here, here).
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