Cuba To Legalize Small and Medium-Sized Private Businesses

On May 24, the Communist Party of Cuba announced that its Seventh Congress this past April had decided that the Party supports legalization of small and medium-sized private businesses, a move that could significantly expand the space allowed for private enterprise.[1]

The Party’s report said categories of small, mid-sized and “micro” private business are being added to its master plan for social and economic development. These categories of business will be recognized as legal entities separate from their owners, implying a degree of protection that hasn’t so far existed for self-employed workers.

The Party justified this decision by saying, “Private property in certain means of production contributes to employment, economic efficiency and well-being, in a context in which socialist property relationships predominate.”

Until now, the government has allowed private enterprise only by self-employed workers in several hundred established categories like restaurant owner or hairdresser. Many of those workers have become de-facto small business owners employing other Cubans. But there are widespread complaints about the difficulties of running a business in a system that does not officially recognize them. Low-level officials often engage in crackdowns on successful businesses for supposed violations of the arcane rules on self-employment.

Cuban business owners and economic experts said they were hopeful the reform would allow private firms to import wholesale supplies and export products to other countries for the first time, removing a major obstacle to private business growth. Most of these de facto businesses currently are forced to buy scarce supplies from state retail stores or on the black market, increasing the scarcity of basic goods and driving up prices for ordinary Cubans. Many entrepreneurs pay networks of “mules” to import goods in checked airline baggage, adding huge costs and delays.

“This is a tremendously important step,” said Alfonso Valentin Larrea Barroso, director-general of Scenius, a cooperatively run economic consulting firm in Havana. “They’re creating, legally speaking, the non-state sector of the economy. They’re making that sector official.”

Similar reactions came from people in the U.S.

“It is about time,” said Emilio Morales, a former senior official in a Cuban government commercial conglomerate who is now president of the Havana Consulting Group in Miami. “They are realizing that the economy is not going to move without this.” Cuban leaders “have seen that all their [international] allies they had are disappearing.”

Richard Feinberg, an economist at the University of California San Diego., said these changes should enable private companies to open bank accounts, do business with state-owned enterprises and engage in international trade. The move should give entrepreneurs “all sorts of rights and capabilities that are critical to running a business.”

These changes will require new legislation by the country’s National Assembly, which is expected to hold one of its biannual meetings by August.

The Party’s report was the first comprehensive public accounting of the Congress, which was closed to the public and international press. It was made publicly available for sale in Cuba in a special tabloid with an announcement that the report will be “democratically debated by the militancy of the Party and the Young Communist League, and representatives of mass organizations and large sectors of society in order to enrich and perfect the report.” The full report has not yet been found on the Internet.[2]

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[1] Weissenstein, Cuba to legalize small and medium-sized private business, InCuba Today (May 24, 2016); Assoc. Press, Cuba to Legalize Small and Medium-Sized Private Businesses, N.Y. Times (May 24, 2016); Althaus, Cuba Moves to Legalize Small-and Medium-Size Businesses, W.S.J. (May 24, 2016); de Llano, Cuba announces that legalize SMEs, El País (May 24, 2016).

[2] For sale tabloid containing special projects on the Conceptualization of Social and Economic Model and the foundations of the National Development Plan, Granma (May 23, 2016).