Can State-owned Enterprises Change the Ways of Thinking and Redesign Production Processes?

A sole proprietor sells peanuts and sweets in Havana streets.  “Businesses” this small were confiscated during the 1968 Revolutionary Perspective. (Luz Escobar)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, July 7, 2022 — Before the next International Congress of Business Management and Public Administration to be held in Havana until July 8, the Deputy Minister of Economy, Johana Odriozola, has made statements to the official newspaper Granma that have been published under the title “Transformations in the Cuban business system in order to grow with efficiency.”

It seems that this congress will address how to “change the ways of thinking and redesign production processes to incorporate into the Cuban business system topics such as Industry 4.0, Artificial Intelligence, Big Data, the Internet of Things and cloud computing.” What a great waste of time!

Cuban communists are convinced that in their socialist model it’s possible to develop a business system that is dependent on the state, on what they call a socialist state enterprise, which they want to promote and give a more relevant role within the economic system. But haven’t these socialist companies been protagonists in Cuba’s economic history since 1959?

After the end of the confiscation proceedings initiated in 1959, with the so-called “Revolutionary Offensive” of 1968, all Cuban productive capital passed into the hands of the state without leaving room for private economic activity. The state became the owner of the means of production and the companies, so its ability to influence the economy and society increased significantly. The companies were all state-owned, and there was no room for private enterprise. And this is how the Cuban economy worked until a few years ago when formulas such as self-employment or micro, small and medium-sized enterprises were approved, which, however, have little to do with the concept of private enterprise that we know.

Private enterprise is based on three fundamental elements: property rights, autonomy and profit motive. None of the three are present in Cuban socialist state enterprises, and therefore, the leaders are unable to attract investments for them, or take advantage of the human talent they have, or give as much flexibility as possible, nor autonomy for the exercise of their rights. And this formula is what Mrs. Odriozola wants to present and vindicate at the congress.

To achieve transformations in the business system, the communists have opened their hand with respect to state enterprise, for example, with measures such as “the elimination of profit distribution limits, the expansion of its corporate purpose, a link with the non-state sector and the creation of state-owned micro, small and medium-sized enterprises.”

Nothing to do with the implementation of a legal framework based on private property rights, as a main reference for the exercise of business activity, much less with decision-making autonomy or the generation of profits. These elements would give the business system a boost, but they are despised by the Cuban communist leaders, who don’t even want to hear anything about them.

Apparently, the leaders of the regime are concerned about the insertion of the new economic actors into the Cuban business system; above all, that the regime might lose the ability to interfere and control the activity of the private sector, within the Marxist philosophy of economic interventionism. It is in the interest of the regime that companies, state or private, be servile and subject to the principles of political hierarchy that establish, of course, who rules and who obeys.

That is why, at the same time that they introduce the previous solutions to lend a hand to the state company, they see the need to keep the new economic actors under control, recognizing that any opening of spaces for state enterprises has its transfer to the private sector.

López Calleja already saw it at the time from GAESA,and that is why he used all his power to limit and stop the development of self-employment in tourism or gastronomy. The problem with the Cuban socialist state enterprise is that it’s inefficient by its own nature, lacks motivation and incentives, and is unable to face private competition when it receives a simple authorization from the state to operate.

Hence, Castro leaders think that the transformations that have been implemented in recent years have benefited private actors, but they haven’t done so to state companies, and, therefore, they want to recover lost space and time. Another thing is that they get it. The intention of the regime, announced by Mrs. Odriozola, is that what remains of the Management Task, the 63 measures of the agricultural sector, the macro programs of the National Economic and Social Development Plan 2030, government management based on science and innovation and territorial development, Díaz Canel’s Strategy — everything will be reviewed to put it at the service of socialist state enterprises.

The deputy minister said that the implementation of these measures has had unexpected and undesirable effects on the regime, citing as an example the informal market with a dollar exchange rate that doesn’t conform to the officially approved rate and that slows down the links between the state sector and private actors. It’s a false argument, which is not sustained, because that informal market was born from the incompetence of the regime to consolidate a fixed exchange rate system by the Central Bank, lacking the necessary currencies.

Other unwanted effects, such as the scarcity of bank financing, are due to the growing demand for financial resources by the state to finance its growing deficit and indebtedness; on the other hand, the idea of streamlining import processes has not worked because the state intermediary agencies created by Malmierca don’t function efficiently.

Therefore, starting to build the house from the roof, as Mrs. Odriozola wants to do, won’t work. To get state-owned companies to “change the ways of thinking and redesign production processes, with topics such as Industry 4.0, artificial intelligence, Big Data, the Internet of Things and cloud computing” requires much more than an international congress. It takes political will, clear ideas and assuming the failure of the socialist business model.

The leaders will not get anywhere if that business system is not consolidated with firm legal bases for the respect of property rights. And there is a long way to go.

Translated by Regina Anavy


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