Cuban Criticism of Government’s Crackdown on Private Sector  

Diario de Cuba, a Cuban independent news outlet, criticizes new details about the Cuban Government’s crackdown on cooperatives involved in construction.[1]

Such private entities are now prohibited from carrying out projects outside the provinces in which they were constituted and now are required to finish projects within three months. In addition, they may not hire labor and self-employed workers and instead only members of the cooperative may work on their projects coupled with a ban on increasing the number of their partners.

According to Diario de Cuba, these restrictions are a result of “fear” of the state bureaucracy, especially in construction, of their inability to compete against the higher quality of private construction cooperatives and the higher wages they pay their workers.

As a result, all workers are more aware of  “the reactionary nature of the state-wage model” and the lack of true socialism in Cuba. Instead, says Diario de Cuba, Cuba has “a system controlled by a group of people interested in staying in power forever.”

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[1] Campos, More bans on cooperatives, Diario de Cuba (Sept. 7, 2017). Previous posts have discussed the recent Cuban government’s crackdown on the private sector: New Cuban Limits on Private Enterprise (Aug. 2, 2017); Why Is the Cuban Government Trying to Slow Down the Private Sector? (Aug. 3, 2017); Cuban Government Shuts Down Accounting Cooperative (Aug. 7, 2017) (comment on 8/3/17 post); Cuba Tries To Calm Private Sector (Aug. 8, 2017) (comment on 8/3/17 post); More Cuban Government Explanations About Actions Regarding Private Sector (Aug. 9, 2017) (comment on 8/3/17 post); Exodus of Cuban Professionals? (Aug. 16, 2017) (comment on 8/3/17 post); Bleak Economic Prospects for Cuba (Aug. 20, 2017).

Bleak Economic Prospects for Cuba

 Although Cuba has reported a 1.1% increase of Gross Domestic Product (GDP) for the first six months of 2017, the prospects for the rest of the year are bleak.[1] Here are the problems:

  • Possible deepening of Venezuelan crisis and further reduction of its oil exports to Cuba.
  • Possible increased cost of oil from Russia, Angola, Algeria and other suppliers in the Caribbean.
  • Possible reduction of American travel to the island.
  • During the first half of this year Cuba paid $ 2.306 billion on its external debt and still has to catch up on current payments to foreign suppliers.
  • Decreased Cuban nickel production and drops in international prices for this commodity.
  • Reduced sugar production.
  • Elusive foreign investment on the island, and complicated, lengthy Cuban process for approval of same.
  • Recent Cuban government measures to control and stifle the country’s private sector.

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[1] Economists: The picture could complicate Cuba even further this second semester, Diario de Cuba (Aug. 19, 2017).

Why is the Cuban Government Trying To Slow Down the Private Sector? 

                                                                                                              Yesterday’s post described the Cuban Government’s suspension of the issuance of new permits for certain self-employment categories and closing down some paladares (private restaurants).

Why is this happening and what is its impact on Cubans?

Nora Gámez Torres of the Miami Herald reports that certain experts say the suspension is the government’s fear of the emergence of a truly successful entrepreneurial class on the island as a future political opponent of the government. As Ted Henken, a U.S. sociologist and expert on Cuba’s private sector, put it this way: “hardliners in the Cuban government are afraid of the private sector, not only because it competes with state monopolies but because economic autonomy ‘can lead to more political freedom and independence, and create a powerful lobby with a different agenda than those in power currently.’”[1]

This move by the Cuban government is seen as against its economic interest as the private sector generates more than $2.5 billion and up to 18% of the economy’s revenues while the implosion of Cuba’s ally, Venezuela, has a major negative impact on Cuba’s economy.

Meanwhile Cubans planning to open new businesses are upset.  Here are some of their reactions.[2]

  • Sara in anticipation of renting a house in Vedado said, “I have spent months and money invested in arranging the house to rent it to foreign tourists, I already had contacts and I was planning to apply for my license in September.”
  • Sergio, a taxi driver who was planning to move to a home buying and selling office, said he lost more than 1,000 CUCs between chairs and other items he bought to set up an office. The government’s suspension of new licenses “demonstrates that no one can make more than four pesos.”
  • Brian, who already had bought equipment to open an appliance repair shop in Havana, has seen his aspirations frustrated, as he had not yet submitted his license application. “Right now I do not know what to do because I owe money to several people for the purchase of equipment.”
  • The owner of a cafeteria in Havana said that in just two months she planned to open a restaurant in the same place. “Now what do I do with all the cutlery, glasses and even an electric coffee maker I bought? I have to sell them or keep them until they reopen the licensing, but no one knows when that will be. The government wants us to be starving all our lives.”
  • Marta, a bookkeeper who looks for accountants to manage her payments at the bank, said that these closures “affects her a lot. As new entrepreneurs do not emerge, it makes it more difficult for me to get new clients. I have been put into China by these bastards since I only had a few months in this activity.”
  • Lázaro, “They do not want a middle class to emerge and they say they take these measures because there are many raw materials and equipment of illicit origin, and where do these illicit products come from? That comes from the lack of control and disaster of state companies,” he said. “They really screwed us up.”

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[1] Torres, Fear is driving Raúl Castro to punish Cuba’s new entrepreneurial class, experts say, Miami Herald (Aug. 2, 2017).

[2] Fernandez, ‘There is no one here to raise their heads,’ they complain affected by the brake on private work, Diario de Cuba (Aug. 2, 2017).

New Cuban Limits on Private Enterprises

On August 1, the Cuban government announced suspensions in the issuance of permits for a large number of private occupations and ventures, including restaurants, bed-and-breakfasts, teachers, street vendors of agricultural products, dressmakers and the relatively recent profession of real estate broker.[1]

The announcement said those already engaged in these private occupations and ventures could continue to operate, but it did not say when the suspensions would end.

In addition, there will be no additional authorizations for “wholesale agricultural product salesman, agricultural retailer, ambulant operator or seller of agricultural products, seller/buyer of discs and operator of equipment of recreation for the rustic equipment.”

This announcement had been preceded by the government’s seizing and closing some private restaurants.[2] In June, for example, the government’s Technical Department of Investigations raided El Litoral, a popular Havana paladar known for its high-end cuisine and customers, and removed all of its fixtures, and others speculated it allegedly was engaged in money-laundering, buying liquor from unlawful suppliers and paying some employees off the books. Two other Havana private restaurants suffered the same fate in June.

These governmental measures were mentioned  by President Raúl Castro in his July speech to Cuba’s National Assembly that was discussed in an earlier post.

He said that rules regarding private enterprises would be enforced and that Cubans would not be permitted to start mini-empires with multiple businesses. Thereafter the National Assembly said a “concentration of property and financial and material wealth would not be permitted.”

Raúl’s message essentially was repeated by Marta Elena Feitó Cabrera, the first deputy minister of Labor and Social Security, in discussing the new suspensions: the decision for suspensions “is part of a systematic process of review and improvement, aimed at correcting deficiencies, so that no action Is outside the legality. The most recent evaluation of the performance of this sector has shown . . . that raw materials, and equipment of illicit origin are used; non-compliance with tax obligations persists and income is under-declared; [there is] lack of confrontation and timely resolution of problems; there are uncertainties and inadequacies in control as well as deficiencies in economic contracting for the provision of services or supply of products between legal persons and natural persons.”

Nevertheless, Cuba is not closing down the private sector with 567,982 outstanding licenses for self-employed workers (12% of the total work force), 2,000 private restaurants and 22,000 rooms in casas particulares (private bed-and-breakfasts). As the CubaDebate article states, “the validity of this form of management as an employment option is unquestionable. Not only has it facilitated the labor reorganization process, it has also succeeded in increasing the supply of goods and services with acceptable levels of quality, as well as gradually lightening the state’s burden to allow it to concentrate on transcendental activities for Cuban economic development.”

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[1] Puig,  Announce new measures for self-employment in Cuba, CubaDebate (Aug. 1, 2017); Assoc. Press, Cuba Stops Issuing New Permits for Some Private Enterprises, N.Y. Times (Aug. 1, 2017).

[2]  Whitefield, Cuba reins in entrepreneurs who take free enterprise too far, Miami Herald (July 31, 2017).

Cuban Entrepreneurs Issue Policy Recommendations to Trump Administration  

On July 18, a group of eight Cuban entrepreneurs held a press conference in Washington, D.C. to announce that they had written to the U.S. Secretaries of State, Treasury and Commerce saying that they were “encouraged to read in President Trump’s June 16 National Security Memorandum on Strengthening the Policy of the United States Toward Cuba that the President wishes to encourage the growth of the Cuban private sector.” Therefore, these entrepreneurs asked the Trump Administration to consider and adopt recommendations regarding U.S. travel to the island, U.S. remittances to Cubans, U.S. banking services for such Cuban enterprises and continued U.S.-Cuba discussions and negotiations.[1]

U.S. Travel to Cuba

The group first asserted: “U.S. travel to Cuba directly benefits private entrepreneurs. The vast majority of U.S. individual travelers (vs. groups) frequent private restaurants and lodging. Fewer travelers will have a direct negative impact on businesses in the hospitality sector as well an indirect negative impact on both forward and backward linkage enterprises.” Therefore, the group recommended the following:

  • “Restore the ability of individuals to engage in self-directed People-to-People educational travel.”
  • “Issue guidance to clarify that individuals who support the Cuban private sector by using private lodging or restaurants are eligible, by general license, for individual travel under the Support for the Cuban People category by virtue of supporting civil society.”
  • “Clearly define new regulations so as not to deter would-be travelers; produce informational materials for public.”

U.S. Remittances to Cubans

Again the group started with a factual background: “Remittances are essential to Cuba’s private sector, providing the financing to begin, and the working capital to sustain, businesses. Remittances also provide Cuban consumers with the ability to patronize private businesses. A U.S. policy of not restricting remittances is therefore critical to the health of the private sector.” The following were the recommendations:

  • “The Department of Commerce should adopt a favorable disposition to approving those exports to Cuba likely to benefit Cuban private sector individuals and/or companies
  • “Allow maximum remittance flows to increase liquidity for private sector and Cuban families; exempt remittance from the prohibition on payments to ‘prohibited officials’ of the Cuban government.”

Banking

The following was the factual background: “Many Cuban entrepreneurs purchase goods and services in the [U.S.] to help run their businesses. Cubans are legally permitted to open bank accounts in the U.S., but there are restrictions on the allowable transactions, and limited and uncertain account services, impairing businesses in both countries.” Therefore, these were the recommendations:

  • “Expand the allowable transactions for Cubans holding bank accounts in the U.S. to include business-related transactions including the acquisition of goods for business use.”
  • “Do not close, and allow access to, U.S. bank accounts held by Cubans when the Cuban individual is not present in the U.S.”
  • “Make public statements clarifying the intent of the Administration to allow Cubans to open bank accounts in the U.S. (limiting risk for banks).”

Bilateral Dialogue and Cooperation

 “Most Cuban entrepreneurs view improved relations between the U.S. and Cuba as a net positive for their businesses, and many developed their business model on this premise.” Therefore, the following recommendations were made:

  • “Continue bilateral engagement on issues of mutual interest to build respect and confidence.”
  • “Continue outreach to U.S. banks and businesses to clarify regulations so allowable engagement continues and expands.”
  • “Engage directly with the Cuban private sector; [Cuban sector] leaders have written two letters to the Administration (one to the President-elect, another to Ivanka Trump Kushner) with no response.”

Conclusion

This letter and its recommendations are wholeheartedly endorsed by this blogger. Cuba’s private sector is a positive development for the Cubans directly involved in that sector, all other Cubans and the U.S., and President Trump’s June 16 announcement already is having negative effects on that sector and needs to be reversed.[2]

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[1] Letter, Acosta, et al. to Secretaries Tillerson, Ross and Minuchin (July 18, 2017); Policy Recommendations [to Trump Administration]: Support to Cuba’s Private Sector (July 18, 2017).

[2] Here is another report of those negative effects: Zanona, In Cuba, Trump’s policy shift casts dark shadow, The Hill (July 19, 2017).

President Raúl Castro Affirms Importance of Cuba’s Private Sector       

President Raúl Castro

On July 14, Raúl Castro Ruz, Army General, First Secretary of the Communist Party of Cuba Central Committee and President of the Councils of State and Ministers, addressed a session of Cuba’s legislature (the National Assembly of People’s Power).[1]

He first noted that despite “difficult circumstances, encouraging, modest [economic] results have been achieved. The Gross Domestic Product grew by 1.1% in the first half of the year, which indicates a change in the economy’s direction as compared to last year. Contributing to this result were agriculture, tourism, and other exports of services, construction, sugar production, and the transportation and communications sectors.”

Castro then affirmed the importance of the private sector of the Cuban economy in these extensive remarks.

He reported that the Council of Ministers recently had authorized “the expansion of self-employment and the experiment with non-agricultural cooperatives . . . with the purpose of gradually freeing the state from responsibility for activities that are not strategic, creating jobs, supporting initiative, and contributing to the national economy’s efficiency in the interest of developing our socialism.”

This “past June, these forms of property management were recognized as among those operating within the Cuban economy, in an extraordinary session of Parliament dedicated to analyzing and approving programmatic documents for our Economic and Social Model.”

“We currently have more than half a million self-employed workers and more than 400 non-agricultural cooperatives, which confirms their validity as a source of employment, while contributing to an increase and greater variety of goods and services available, with an acceptable level of quality.”

On the other hand, there have been “violations of the legal regulations in effect, such as the utilization of raw materials and equipment of illicit origin, under-declaration of income to evade tax obligations, and insufficient state control at all levels.” To meet these problems, the Council of Ministers has adopted measures that soon will be announced.

The Council, however, has “not renounced the expansion and development of self-employment, or the continuation of the experiment with non-agricultural cooperatives. We are not going to draw back or stop, nor will we allow the non-state sector to be stigmatized or face prejudice, but it is imperative that laws be respected, progress consolidated, positive aspects – which are more than a few – generalized, and illegalities and other deviations from established policy resolutely confronted.”

The “pace and scope of the changes we need to make to our model must be conditioned by the capacity we have to do things well and rectify any misstep in a timely manner. This will only be possible if adequate prior preparation is ensured – which we haven’t done – training and comprehension of established regulations at every level, follow-up and guidance of the process – aspects marked by a fair dose of superficiality, and an excess of enthusiasm and desire to move more rapidly than we are truly capable of managing.”

“What is a state, especially a socialist state, doing administering a barbershop with one chair, or two or three, and with one administrator for a certain number of small barber shops – not many. I mention this example because it was one of the first steps we took.”

The errors of implementation of these changes are mainly “ours, we leaders who developed this policy. . . . This is the reality. Let’s not try to block the sun with a finger. Mistakes are mistakes. And they are our mistakes, and if we are going to consider hierarchies among us, in the first place, they are mine, because I was part of this decision. This is the reality.”

Conclusion

As has been noted in previous blog posts, the Cuban government and people have recognized that entrepreneurs in the private sector are playing increasingly important roles in the Cuban economy and society and that developing a mixed economy is not an easy project.[2]

This is why it is so important for the U.S. Congress to adopt bills confirming the freedom for Americans to travel to Cuba on individual person-to-person trips that are important customers for businesses owned by Cuban entrepreneurs.[3] 

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[1] Castro Ruz, We will continue to advance along the path freely chosen by our people, Granma (July 17, 2017) (official English translation of the original Spanish).

[2] See posts listed in the “Cuban Economy” section of List of Posts to dwkcommentaries—Topical: CUBA.

[3] See This Blogger’s Reactions to Trump Reversal of Some U.S.-Cuba Normalization Policies (June 23, 2017); Open Letter to U.S. Congress About U.S. Freedom To Travel to Cuba (July 16, 2017).

Open Letter to U.S. Congress About U.S. Freedom To Travel to Cuba

To: Senator Flake: As an U.S. and Minnesota citizen, I thank you for sponsoring legislation to grant U.S. citizens freedom to travel to Cuba (S.127 Freedom for Americans to Travel to Cuba Act). I also thank and copy my Minnesota Senators, Amy Klobuchar and Al Franken, for joining 52 other senators in co-sponsoring this bill.

To: Representative Mark Sanford: I thank you for sponsoring a similar bill in the House (H.R.351—Freedom to Travel to Cuba Act of 2017). I also thank and copy the three Minnesota representatives (Tom Emmer, Erik Paulsen and Rick Nolan) who have joined 21 other representatives in cosponsoring the bill. By copies of this open letter, I urge the other Minnesota representatives (Timothy Walz, Jason Lewis, Betty McCollum, Keith Ellison and Collin Peterson) to join the ranks of cosponsors.

Now is the time to push these bills forward for votes in the two chambers before the Trump Administration comes forward with proposed regulations to implement the President’s intention to eliminate individual person-to-person travel to the island. (A copy of this open letter is also being sent to President Trump.)

In addition to the arguments already advanced for supporting these bills, I submit that the new Trump policy is internally inconsistent for the following reasons:

  • The ban on individual person-to-person travel, by all accounts, will reduce the overall amount of U.S. travel to the island and thereby have substantial negative effects on Cuba’s emerging private sector, which has improved the living standards of many Cubans and is a force for change in Cuba and for friendlier relations with the U.S. Remember that President Trump favors measures to improve the lives of ordinary Cubans.
  • Forcing Americans who want to have a person-to-person experience in Cuba to do so only with established tour groups will mean “large tour groups [that] are too big for smaller bed-and-breakfast rentals, and their [Cuban] government-appointed guides tend to ply the well-trodden routes that bypass the new galleries, restaurants and night spots opened by enterprising Cubans and others.” This is a direct negative effect on Cubans’ standard of living, which President Trump does not want.
  • According to Andrea Gallina, an Italian entrepreneur who last year opened a high-end boutique hotel, Paseo 206, with his Cuban spouse, “If independent American travel is cut off, you won’t only hurt the bed-and-breakfasts. It’s also the construction crews, the private tour guides, the taxi drivers, the restaurants and the artists selling handicrafts.” Again, the Cubans now engaged in these private enterprises will be substantially disadvantaged.
  • The larger groups will by necessity have to stay in hotels, most of which are state-owned, rather than individually owned b&bs, and travel in tour buses (again, state-owned), rather than individually owned taxis. The large-group U.S. visitors also probably will be provided with government-provided guides rather than private guides used by people traveling by themselves or in small groups. All of these consequences are contrary to the President’s intent to stop or limit U.S. persons from doing business with enterprises owned or controlled by the Cuban military or security services.
  • The ban on individual person-to-person travel will increase the cost for Americans’ traveling to the island and thereby reduce the amount of such travel. As a result, the U.S. will lose the impact on Cubans of ordinary Americans, who often are the best ambassadors for the U.S., its government, people and values.

====================================================For more details, see This Blogger’s Reactions to Trump Reversal of Some U.S.-Cuba Normalization Policies (June 23, 2017).