The Government Guidelines for the Economy and the new Cuban Economic and Social Structure / Estado de Sats / State of Sats

By Antonio Rodiles

The government document regarding guidelines for economic and social policy seeks to outline a new design for Cuban society. This new design envisions an economy essentially separated into three distinct sectors:

1) Large Enterprises: This segment contemplates those sectors with the highest profitability. Here we find tourism, the new Economic Zones (for example, the Port of Mariel), telecommunications, transport, nickel production, and chain stores. These include State Enterprises and Joint Ventures.

1a) State Enterprises: It is important to note that within the large state enterprises we find the Armed Forces (FAR) and the Ministry of the Interior (MININT). Both institutions currently control many of the most profitable business in Cuba. In recent years, unlike in many countries, these institutions have behaved as corporations.

1b) Joint Ventures with Foreign Capital: Cuban capital is excluded from this sector. One of the countries showing increased interest in investing in Cuba for long-term profitability is Brazil. It’s clear that Brazil is betting on a future change in relations between Cuba and the United States, and is looking to position itself for that moment, hence the great interest it is showing in the Mariel Zone project.

2) Small and Medium-sized Enterprises (SMEs, or, in Spanish known by the acronym PYMEs)

2a) Cooperatives (regional collectives). Sectors of light industry, services, food production. Cuba manages this sector through usufruct – a leasing arrangement – in which the State maintains ownership of the enterprises, while allowing a certain independence to those who hold them in usufruct. So far it is not clear under what tax structure they will operate.

2b) Local Governments. These enterprises are tied to local governments and have greater autonomy. Their existence depends on their profitability.

3) Micro-enterprises (referred to in Cuba as timbiriches). Small manufacturing, small restaurants, rental homes and offices. Tax rates for these businesses are extremely high, there are limitations on contracting for labor, as well as other restrictions that will not allow the natural growth of the sector.

The State will retain control over professional services, which includes sending professionals to other nations. These professionals will continue to receive only a tiny part of the salary paid to the Cuban Government for their services.

There are two key points mentioned in the Government Guidelines document:

1. The economic policy of the new stage corresponds to the principle that only socialism is capable of overcoming the difficulties and preserving the conquests of the Revolution, and that in the updating of the economic model planning will be supreme, not the market. [1] (The document does not reference what exactly is understood by socialism under the new economic-social design.)

2. The concentration of ownership will not be permitted. [1]

This is another area that raises many questions. Is it referring only to the micro-enterprise sector? Or does it also refer to State monopolies or enterprise groups?

One very striking aspect of the document is the lack of any reference to the mechanisms of transparency in this new economic structure. There is not a single sentence that explains to us how a Cuban citizen can verify government spending, the amounts of national and foreign investment, or the financial statements of companies and ministries, including the Armed Forces and the Ministry of the Interior.

This roadmap seeks, undoubtedly, to approach in the medium and long term the “market socialism” model in place in China and Vietnam, but with marked limitations. The key differences are directed at private enterprise and national and foreign investment. In the case of China, the investment from Chinese in the diaspora was crucial, while in our country the very mention of this factor is taboo. The proposed model is visibly marked by the fear of losing control of the change process, as well as a strong ideological counterweight, which continues to hold back the transformations needed in the country.

In recent times, within the island, certain trends that promote “renewed socialism” have gathered strength. Some of these take as a social paradigm a system structured around Sector 2, above — small and medium sized enterprises. A product of the failure of socialism in Eastern Europe and of the profound crisis facing Cuba, the promoters of this approach advocate less centralization and a flatter power structure. They do not, however, renounce the collectivist vision as the essential framework of Cuban society, that is, they will look for collectivization on a micro-scale. This thinking continues to demonstrate a rejection of the growth of private enterprise and capital for Cubans, as well as the full development of individual freedoms. It is very important to mention that these new visions do not point to Communism as “the end of history,” or at least do not make reference to it.

I would like to mention a figure who appeared in the Economist Magazine, relating to the performance of private enterprises in China. At a conference in November of 2010, Zheng Yumin, director of the Zhejiang Provincial Administrative Bureau for Industry and Commerce, said there were 43 million companies in China, of which 93% are privately owned, employing 92% of the total workforce.[2] These statistics show the need to allow small, medium, and also large private enterprises to play their rightful roles in the economy of any nation.

A design like that proposed in the Cuban Government’s Guidelines, is clearly biased against the growth and development of the nation, in social, economic and political aspects, because it establishes strong constraints on individual initiative, a basic element of any contemporary society. While it may be a step forward in pursuit of decentralization and the possibility of new forms of ownership, it is important that the changes undertaken reflect a depth consistent with a long-term vision, and do not end up serving as a straitjacket on society.

In the 21st century it is essential to analyze the development of nations as a process that refers not only to the economic sector, but that also encompasses various social and political aspects from a more holistic vision.  Societies structured as multi-level systems in each one of their building blocks, or basic elements, should have the ability to establish a spontaneous order. This spontaneous association guarantees that properties such as “emergence” — also referred to as “self-organization,” a central tenet of Marxism — can function; that is, the system generates new forms that are not obtained as a sum of its constituent parts.

In 1999, James D. Wolfensohn presented a new comprehensive framework for analyzing development in terms of three factors[3]:

1) Development of Social Institutions (system of government, judicial system, financial institutions and social programs).

2) Human Conditions: education and health.

3) Physical Infrastructure: water, energy, transportation and environmental protection.

In the same vein, a recent article by Francis Fukuyama and Brian Levy[4] seeks to establish the essential elements, the building blocks, which make up a development strategy, assessing this as the multilevel system it is. The elements they establish are:

1) Economic growth.

2) Development of civil society.

3) The Constitution of the State.

4) Democratic political institutions, including both the rule of law and a democratic electoral system.

Let us analyze in more detail four elements that undoubtedly create the necessary basis for a nation to demonstrate a strong social dynamic:

1) Social development implies economic growth, since the latter provides the possibility of better living conditions, both individually and as a nation. Economic growth also provides the potential, for both individuals and the State, to have at their disposal the resources to develop their projects. In the specific case of the State, we are talking particularly of those projects that, in turn, allow for long-term growth: technology and infrastructure, among others. Economic growth, without a doubt, goes hand in hand with the exercise of economic freedom, which is a necessary if not sufficient condition, for the establishment of a prosperous society.

2) Civil society is the engine that generates not only new social structures, but also promotes the renewal of state institutions, managing them so that they can adjust to meet growing social demands. The feedback between civil society and the State must be a factor that works in favor of the development of nations. A vigorous civil society only occurs when individuals have the ability to interact within a framework of full respect for individual rights, governed by a rule of law. Every State should guarantee the exercise of economic and political freedoms, and should never function as a straitjacket on society. Contemporary civil society should be seen as a framework of networks with the highest connectivity, formed from the individual as an entity, to more complex social structures, and framed not only in a national context, but a transnational one as well.

3) An effective state must have as its principal objective the establishment of law and order through a state of law. This will ensure the appropriate framework to support social dynamics, in which there is majority rule with full respect for the minority. Only then is it possible that individuals can enjoy the benefits of belonging to a nation. The constitution of the State is, in itself, a multi-dimensional process[4], beginning with the ability to concentrate the coercive power of a territory, and passing through the administrative ability to offer efficient services, as well as to control corruption. The control of law and order on the part of the State is a necessary condition for a country to function as an entity. At present the vision of the Nation State has begun to fade with the appearance of supranational unions. It is very important to note that, from this perspective, an effective State is not a large State and is the counterpart of the totalitarian State.

4) The establishment of democratic political institutions plays an essential role in any strategy for development. The creation of the mechanisms of transparency, the establishment of laws that prevent unfair competition and monopolies, are undoubtedly basic elements to create a dynamic society. Any system that is based on the establishment of monopolies – be they state or private groups, protected or not by government institutions – will condemn the country to failure over the long term. Our economy is a clear example of how a State monopoly ends up smothering individual initiative and achieves high levels of inefficiency and ineffectiveness. Other cases, such as Mexico, demonstrate the results of an economy based on a combination of State monopoly associated with interest groups. This unholy alliance ends up creating, in that Aztec county, what was once called “a perfect dictatorship.” The institutions are completely at the service of specific groups and the country is very far from functioning as a state of laws. The rule of law remains weak, responding to the interests of the groups in power. We need to understand the growth in organized crime — drug cartels — as a direct result of the lack of democratic credibility.

To begin the process of transformation in our country, we must first consider all the elements that will play a part. Taking into account the previous analysis, it is clear that a development strategy implies the most comprehensive changes at the deepest levels. All transformations need to be designed to promote more effective mechanisms that stimulate the social dynamic, looking for direct support in our own experience and in that of other nations.

There are three points that can form a base for these transformations. This base guarantees a process of development over the medium and long term that would allow us to avoid unnecessary and painful situations. These three elements are:

1) Establish a legal framework that sets out clearly and transparently, the rights regarding private property as well as the ability of citizens, either individually or in association with others, to make use of their possessions for private, commercial and social ends. The establishment of private enterprise across a wide range of economic sectors is essential.

2) Undertake a modernization of the State, which has as its principal objective the creation of decentralized and democratic structures. Consider within this process, among other things, tax reform and the corresponding mechanisms of accountability and transparency, seeking the best balance between the performance of the market and the social responsibilities assumed by the State.

3) Introduce into our country the process of modernization and globalization that holds sway in the contemporary world. An introduction that leads to the free flow of information, freedom of movement for people as well as openness to investments, particularly to encourage Cubans residing both within and outside the island to be participants in the process of renewal.

In conclusion I would like to make one final comment. Starting from the vision that society can be represented as the union of a framework of networks, occupied at different levels, and responding to different structures and dynamics, it is then possible to understand why a pre-established roadmap, as a proposal for the future, is quite inadequate.

The contemporary world shows us that societies can no longer be seen only as national realities, but that we must understand them as transnational entities, which adds still more complexity to these systems. The creation of new levels in this structure will depend on the capacity for self-generation starting from a spontaneous order and its interaction with the environment. The result of this dynamic is not predicable, so to plan its emergence and subsequent evolution is, at the very least, Utopian. Our aspiration must be to establish strategies that facilitate and stimulate this spontaneous order as a generating element and driving force of society, and to ensure the existence of an open society. It is on this point where I differ completely from planned and collectivist models, because these undoubtedly end up smothering the self-generation capacity of these systems.

1) Government of Cuba: Lineamientos de la política económica y social. (Guidelines for Economic and Social Policy)
2) The Economist Magazine: Bamboo Capitalism. Mar 10th 2011.
3) Bar-Yam, Yaneer. Making Things Work. Knowledge Press.
4) Fukuyama, F. Levy, B. “Development Strategies”

27 March 2011