Translation by the Editors
The announcement by Presidents Obama and Castro on December 17, 2014 that they would reestablish diplomatic relations between Cuba and the United States laid out a new scenario for aspiring Cuban entrepreneurs. Deciphering the aspirations of the private sector in Cuba in regard to these changes and intentions is a somewhat cryptic process. Access to information about the sector is notoriously difficult, largely due to the fact that no official statistics or ethnographic studies on it have been published. Nevertheless, a number of studies, (Feinberg 2013, Ritter and Henken 2015) have indicated that a significant portion of the sector is optimistic about the developing political, commercial, and economic relations with the U.S. Let us examine the prospects for Cuba’s growing independent sector:
U.S. Transculturation
Since 2015, the U.S. government has approved a series of measures that, in the words of U.S. Secretary of Commerce Penny Pritzker, “are designed to empower the emerging Cuban private sector and help improve the lives of Cubans.” At the same time, U.S. entrepreneurs have shown considerable interest in investing in Cuba and partnering with the emerging private sector. In itself, the increase in Americans traveling to the island constitutes an important opportunity for independent Cuban entrepreneurs, such as landlords, restaurant owners, and travel agents – especially because the state sector is unable to fulfill the new demand.
For instance, U.S. tourists’ need for credit and debit card services –along with the use of remittances for private business investment- might result in new banking services for the private sector. In addition, support for the import and export of goods and services, particularly in the areas of computer programming and telecommunication, will undoubtedly help independent enterprises; Apple, for example, has already announced that its products and software will be available in Cuba. As a result of improved access to financing, supplies, and technology the private sector will strengthen its competitive advantage with regard to consumers and international business, and may foster alliances with the state. Various statements from the Cuban government show a growing number of partnerships between the state and the private sectors, most notably in construction, design, catering and accounting.
American products circulate widely, despite the fact that they might enter the country informally. In addition, the transculturation of holidays, trends, and American designs is quickly being reflected in private businesses, such as restaurants, hair salons, and electronics repair shops. For example, last fall private restaurants in Havana offered Thanksgiving dinner specials, and many private boutiques sold Halloween costumes for both Americans and Cubans.
Legal Limitations to Independent Foreign Trade
Despite the opportunities that the rapprochement with the U.S. offers, there remain significant limitations. The U.S. embargo against the island continues to restrict commerce and U.S. dollar transactions. And Cuban legislation imposes further restrictions.
All Cuban parties, including non-state companies, require an authorization from (1) the Foreign Commerce Ministry for import and export operations, as per regulations set forth in the Regulations of Import and Export Activities, and (2) the Ministry of Economy and Planning if the products involved as considered as investments. Additional significant restrictions concern private entrepreneurs as self-employed workers, who require the legal representation of the state when carrying out international commercial activities. Since they are not recognized as having legal personhood –as per the Cuban Constitution- they are not allowed to undertake activities under their full legal responsibility. Until now, it has been the use of executive power on the part of the Cuban government what has made those activities possible on a case by case basis. In accordance with the Cuban Civil Code (Law 59, Art. 141.1), a natural person or legal body can participate in a partnership (with the prior authorization of state agencies) through the contribution of money or other goods or through labor, in order to attain objectives in line with social interests and the political, social, and economic laws delineated in the Cuban Constitution.
Consequently, there remains the possibility that the Cuban government might permit certain private business activities that meet requirements to operate as small businesses under “special agreements” or transitional provisions, allowing them to gain access to U.S. trade and financing (a move that would be consistent, in fact, with the crisis management policies that have been developing since the 1990s). Yet, although Raúl Castro has frequently stated that self-employed workers are here to stay, government policies and institutions still present these workers negatively, as materialistic and prone to labor exploitation.
It is clear that things cannot be otherwise under the current framework. In order for a private company to compete freely with state companies in international trade, the government would first have to redefine socialism. Cuba’s institutional culture remains firmly rooted in monopolized and centralized mechanisms of control.
Policy Limitations to Independent Business Growth
Government policies have so far prevented the growth of independent businesses in four major ways: (1) by strengthening the tax structure; (2) by controlling raw materials; (3) by limiting the proliferation of self-employment through denying legal personhood to business agents and limiting\the accumulation of private property; and (4) by limiting state companies’ ability to make payments to this sector, a point that is hotly debated at present. (In the last two years, commercial transactions between the state and the private sector have increased considerably –so much so that the relative empowerment of the private sector has led the government to limit certain state companies from engaging in business with it.)
At this point, even if the government facilitates direct relations between the self-employed and foreign businesses, it will remain to be seen how many independent entrepreneurs become actual company owners. Many of these entrepreneurs have been able to stay in business only because their ability to operate within the production and price-regulating features of the informal and underground economies (which are economies geared toward survival, focusing on short-term objectives and low-level investments). Many independent businesses might be productive, efficient and profitable. However, much of their efficiency is due to strong ties with the informal economy and the black market, where they operate with precarious work conditions, legal irregularities, tax evasion, excessive tolerance and culturally-ingrained informal bartering. The economic performance generated in the informal and underground economies could not be sustained under the conditions of both formal enterprise and free market.
Conclusion
The road to formalizing the private sector in Cuba may well be both complicated and uneven. The measures that the U.S. government has promoted to incentivize private entrepreneurship in Cuba must contend with the policy obstacles imposed on the private sector by the Cuban government. At the same time, the informality of this sector in Cuba demands not only significant changes in Cuban institutionality, but also a legal and transparent business culture.
Feature images by Ted Henken.