What’s Going On with Cuba’s Non-Farming Cooperatives?

Passengers getting ready to board one of the new Rutero fixed-route shared taxis operating in Havana as a part of a cooperative. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, September 2, 2019 — After the 2013 launch of an economic initiative described as “experimental,” Cuba’s communist regime has decided, without prior warning, to pull the plug non-agricultural cooperatives.

The experiment showed Cuban leaders that the impact of cooperatives on the economy was clearly asymmetrical, with results that were not the same in all sectors or activities. Cooperatives focused on construction, personal and technical services and the industrial sector registered the most positive results while wholesale markets and related services did not yield similar outcomes.

Officials have pointed to “deviations in the management of some cooperatives, primarily related to irregularities and legal violations, which distort the principles of cooperativism.”

Examples of such deficiencies included “misappropriation of resources and income; evidence of corruption; materialization of important elements by management of some cooperatives related to the contracting of the salaried labor force and the purchase of services from third parties; deficiencies in accounting practices; differences in pay between members who serve as managers and those who perform work directly related to the cooperatives’ core functions; use of bank funds for purposes other than those indicated; irregularities in the budgets of construction projects, and in their billing and collections; non-compliance with planned changes in the management and image of food service cooperatives; and a tendency to raise prices.” And so on and so on.

It’s the same old story. When a private-sector economic activity flourishes in Cuba, it is cut off at the root if it cannot be otherwise controlled. The 398 existing non-farm cooperatives which operate in ten sectors of the economy, employ about 18,000 members and generate income exceeding six billion pesos will be “frozen” in time. And it does not look like any more will be approved. Economic freedom is once again being infringed, as it has been for sixty years.

Proposals that were under review have been officially returned to their applicants through the Provincial Administrative Councils, the Central State Administration Organisms and the National Entities. Evidence that Communist authorities are hitting the brakes can be seen in data from the period between 2014 and 2017, when the number of cooperative members went from 5,521 to 17,704. In 2018, however, it fell to 17,539. According to official figures, the number of workers hired by cooperatives also declined, from 61,280 in 2014, to 888 in 2017, to 777 in 2018.

Cooperatives are part of the so-called “social economy” and operate in every country in the world, especially in those with market economies. Their workers decide voluntarily, independently and without political interference how to run their businesses or launch collaborative initiatives. Though cooperatives prioritize labor, that does not mean financial considerations such as capital investments and profit are ignored. They run on the democratic principle of one worker one vote yet are managed by highly qualified, experienced professionals who operate on the basis of profitability, business survival and value creation.

Why aren’t there more non-farm cooperatives in Cuba? There are the usual political justifications but recent reforms published in the Official Ordinary Gazette No. 63, which take effect in November, offer other clues as to what may be going on. Two new regulations confirm, for example, that the regime does not want cooperatives to partner with individuals who are not part of their workforce to avoid a situation in which a director or general manager prioritizes the interests of the organization over communist orthodoxy. The regime is also interfering in the operation of cooperatives in other ways such as setting limits on partners’ compensation. It also holds out the possibility of temporarily suspending a cooperative’s operations for up to six months if management problems or irregularities are found.

In fact, the regime does not want cooperatives capable of expanding into nation-wide operations, preferring those that are locally based. Those that do expand to the national level would be strictly regulated and limited to repair and maintenance of textile manufacturing machinery, technological equipment, weight scales, air conditioning and refrigeration equipment, bowling alleys and aluminum fabrication machinery.There are no reasons given for these restrictions, whose aim is to limit the scope of a cooperative’s commercial production and prevent it from achieving the maximum efficiency that economies of scale would provide.

It is an attempt to improve membership training but also a clear interference in these organizations, which should be free to establish their own training programs without being forced to set up a fund to finance them. It is also an attempt to set the terms for electing a cooperative’s president as well as for his or her removal. This violates the principle of collective, democratic decision making by members to organize themselves in an independent manner in order to establish their business.

In its obsessive need for total control, the regime has instituted a probationary period for new members in order to evaluate them before allowing them to join cooperatives. This betrays a clear ignorance of the role members play in a cooperative and a need to insure there are no differences between them.

More obvious are the limits set on the growth of cooperatives and how they disadvantage the largest ones relative to smallest, as outlined below:

Cooperatives with less than ten members will be allowed to grow until the number of members has doubled.

Membership in cooperatives with 11 to 50 members will be allowed to grow no more than 50%.

Membership in cooperatives with 51 to 100 members will be allowed to grow no more than 20%.

Membership in cooperatives with 101 members will be allowed to grow no more than 10%.

The termination and dissolution of cooperatives is another tool the communist bureaucracy uses on these new entities. Regulations allow the administrative body that revokes a cooperative’s license to also settle its debts and liquidate its assets. There is, however, an indefinite right to appeal an administrative decision to dissolve a cooperative. The administrative body is also authorized to negotiate bonuses, exemptions from rental payments for real estate when a cooperative assumes responsibilities for repairs, and the sale of cooperative vehicles to other legal entities.

Property assets owned by individual members may be made available to the cooperative.  In addition to monetary assets and in-kind payments, personal property may also be placed at the cooperative’s disposal, either in exchange for money or at no cost. This is the only instance in which a cooperative, through its general assembly, has authority to approve the corresponding terms, conditions and remuneration of the operation.

To address what authorities see as the most obvious management failures of cooperatives, there are plans to simplify access to supplies as part of recently approved measures to boost the economy. This would be done through the sale of raw materials and consumable goods. But there are no specific details, only talk about a generic authorization for state-owned companies to market any available products they have to cooperatives at set prices, eliminating the subsidy in corresponding cases.

I do not believe that these measures will allow the development of a social economy in Cuba comparable to those other countries. It will not contribute to the development of small and medium size businesses or reduce the state’s suffocating pressure on the economy. It is yet another plan that will end in disaster. And once again the fault will not lie with the embargo or measurees by the Trump’s administration.


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