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| Economic reform has aimed to replace the black market with regulated markets |
By Arturo Lopez Levy, The Huffington Post, February 25, 2013
Raul Castro's first presidential term was marked by economic reform
and political liberalization. Over the last five years, the government created
important institutional foundations for a mixed economy and a less vertical
relationship between the state and civil society. Beginning in 2009, a commission
to discuss and implement the reforms was created, and through its own
initiative, the Council of State instituted an anti-corruption general agency,
while restructuring various ministries, in particular, the Super Ministry for
Basic Industry in charge of Energy and Mining, and the Sugar Industry. The
institutional changes have been accompanied by fiscal, credit and migration
reform, a law for cooperatives, as well as the legalization of various markets
for consumer goods (real estate, used cars, fast food and restaurants) and
services (transportation) directly impacting Cubans' daily lives.
The presidential succession from Fidel to Raul Castro has been
complemented by an almost completely renovated Council of Ministers and an
inter-generational transition in the military command at the level of regional
armies and in the party and government at intermediate levels.
The Economy as Priority
The strategic nature of the economic transition is expressed in the
changes in the composition of the labor force. In less than three years between
2010 and 2013, the number of individuals working in small businesses
practically tripled, from around 160,000 to 390,000. The liberalization of the
licensing process and the amplifying of the production scale on which these businesses
operate are significant. Likewise, contracts between state and non-state
sectors have been liberalized, opening the possibility for improved productive
and administrative synergies between the two, as well as the creation of
wholesale markets and credit mechanisms to support the emerging private sector.
By the end of 2012, the law of cooperatives was approved, indicating a
move away from government control over significant areas of agricultural
production, services, small industries and transportation. The legislation
included mechanisms to create as well as dissolve such entities, offering a
legal framework for their operation within market logic. The law allows for the
creation of second degree or cluster cooperatives, a legal mechanism that facilitates
amplification of production, the coordination of activities and the
establishment of stable relationships between various cooperatives.
This shift away from state control is very far removed from an optimal
process in economic terms. Instead of maximizing government revenue by selling
or renting the assets (taxi cars, restaurants, cafeterias) to the highest
bidder, the government has chosen a second best, less disruptive, option:
offering the property in usufruct to the same workers who have so far been
mismanaging it, with the hope that under the new conditions they will do
better. It remains to be seen how emerging institutions will commit to
competition and market selection of best practices and administrators, and
whether hard budget constraints will be applied in order to allow those who are
inefficient under the new conditions to fail.
The cooperatives law expressed a compromise between a desire to
improve productivity and a political framework biased towards collectivist
forms. Property rights in cooperatives are less defined than in small or medium
private business. That situation makes an efficient system of contracts and
rule of law more relevant than ever, an area in which Cuba is not exactly the
epitome of virtue. The experience since the 1990s with the Units of Basic
Cooperative Production (UBCP) illustrates that, in the absence of a market
framework and the proper legal autonomy, the record for a cooperative is not
substantially different than that for a State enterprise, unlike that of the private
businesses.
The new flexibility of contracts between state-owned companies and the
non-state sector favor the expansion of areas (such as transportation) in which
private or cooperative ownership has expanded in the last three years. This
expansion has already created competitive dynamics allowing good State managers
to take advantage of the new conditions, and differentiate themselves from
those lacking such adaptive capacities, especially at the local level. The
government's discipline regarding the granting of subsidies and non-competitive
contracts, controlling corruption, and promoting transparency may contribute to
the creation of a labor market for administrators, in which those who are able
to manage better receive better salaries.
Unfortunately Cuba lacks legal and administrative experience in the
preparation and implementation of efficient contracts and this is more
difficult to achieve in the short term than simply allowing the expansion of
private property. As modern economic theory has shown, in contrast to that what
neoliberal ideologues postulate, a better definition of property rights is
associated with production increases at the level of small- and medium-sized
business. However when corporate structure is more complex, the incomplete
nature of contracts between a principal (shareholders, cooperative owners, the
government) and its agent (managers) and an environment committed to
competition become more fundamental factors.
Two
notable failures of the reform so far are the lack of a substantial revival of
agricultural production, including in the sugarcane industry, and the weak
impulse toward export-oriented foreign investment. Even in East Asian
countries, with far larger markets than that of Cuba, state promotion of
foreign investment was oriented toward the promotion of exports, where
competition performs with greater rigor. In the Cuban case, as University of
Havana economist Juan Triana has pointed out, the very meager growth is
affected by the perverse incentive that many of the foreign enterprises have,
even in the midst of full reform, to increase their projections toward the
captive national market. In this context, contracts with state enterprises and
monopolistic chains of stores, foreign and local corporations extract the maximum
rent from a basically unprotected Cuban consumer.
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