There are already five cooperatives (four non-agricultural and one agricultural) that, as I have learned, have been converted to private MSMEs in Cuba.1 If a survey is made of how many non-agricultural and agricultural cooperatives have been dissolved in the last year, and have seen their business continue as private MSMEs, the number is probably higher, hopefully not by much.
It would seem that the phenomenon of privatization of cooperatives is occurring not only with non-agricultural cooperatives but also with agricultural cooperatives. But, although I believe there are wrongs to be corrected in the legislation on agricultural cooperatives (Decree Law 365/2018 and Decree 354/2018), in this analysis I will limit myself to the former.
The conversion of cooperatives to private enterprises might not seem like a problem. But it is, and serious, with significant and irreversible repercussions for the members of these cooperatives and our entire society.
Some might say that these reconversions are a demonstration that cooperatives are an unfeasible utopia and that it would have been better to stop fooling around and go directly to private enterprises. They would say, as I have already heard and read several times: “cooperatives are very few in relation to self-employed workers and MSMEs, so why all the fuss?”
Suffice it to say for now that ignorance, false or real, is a faithful ally of the most conservative causes in the world.
A quick search on the Internet will show that cooperatives are not a ridiculous form of business or a leftist daydream.
In Cuba, there are 5,156 cooperatives, according to National Office of Statistics and Information (ONEI) data from October 2022. Of these, 2,431 are Credit and Services Cooperatives (CCS), 846 Agricultural Production Cooperatives (CPA), 1,406 Basic Cooperative Production Units (UBPC) and 473 Non-Agricultural Cooperatives (CNA).
According to the International Cooperative Alliance (ICA), 12% of the world’s population is organized in 3 million cooperatives that produce more than 12 trillion in income and ensure 10% of global employment.
Interested individuals could learn why there are so few cooperatives in the world if compared to the number of private enterprises. Something that has a lot to do with the lack of legal and regulatory frameworks conducive to their development, despite the fact that it has been shown that they are more resilient than private enterprises.2
For those who want Cuba to become a society that truly responds and serves the needs and aspirations of the majority, the privatization of cooperatives and, even more, of those that arose from state ownership, is undoubtedly a very serious problem that must be faced with the greatest urgency.
To put it in a few words: private interests are stripping the ownership of the means of production from groups of workers and, even, from all Cubans, since we were, or are, owners of the state property that was sold or rented to its workers to be managed as a cooperative.
If this process is not stopped, a large part of the cooperatives that represent something valuable to private interests could be privatized. This would result in an increase in unemployment, concentration of wealth and inequality: the owners of the new MSMEs are not employing the old members-workers that they consider have low productivity even though they are older people; from dozens of owners, these are passed to a handful; and new owners are no longer constrained by the range of income difference.3
Who is to blame for this privatization of cooperatives? Some will say that no one is to blame and that it is natural for this to happen since private enterprises are a more “efficient” way and those cooperatives “failed.” Nothing is further from the truth: even under narrow efficiency criteria — which do not take external factors into account — there are numerous studies that show that cooperatives are as efficient as or more efficient than their private counterparts, and obviously more so with a more holistic understanding of efficiency.4
I know some of the cooperatives that are being converted to MSMEs and were very efficient and productive: they were successful cooperatives that — in the midst of the complex challenges that the current situation of our economy creates for all business forms — could have continued operating as such if it was not because errors in the regulations facilitate their privatization and the pernicious sagacity of their leaders.
The phenomena of privatization of cooperatives (or “demutualization”) occur precisely with successful cooperatives when the regulations — due to the absence of a General Law on Cooperatives that reflects cooperative principles — allow a few to seize them, dazzling the members with juicy sums of money.
Private enterprises, without a doubt, must play a role in our society because they stimulate the economy and allow individuals interested in creating capital enterprises to do so and not establish false cooperatives. Moreover, I agree with the Conceptualization of our socioeconomic model, our current Constitution, as well as those of other countries, the Global Action on Promoting Social and Solidarity Economy Ecosystems adopted by the countries of the Organization for Economic Cooperation and Development or OECD (2022), the Action Plan for the Social Economy of the European Union (2021), the ILO’s Promotion of Cooperatives Recommendation, 2002 (No. 193) that states that seek the common good should promote cooperatives.
These and other national and international policies recognize that cooperatives — as leaders of the social economy, that is, of enterprises not guided by the maximization of profit — are better prepared than private enterprises to create decent and steady jobs, contribute to local development, and respond to social needs and the great challenges we face as humanity: growing inequality, polarization and climate change.
Others say that this has happened because the members of the cooperatives converted to MSMEs do not have a “cooperative culture.” It turns out that three of the four non-agricultural cooperatives that I know of that have been privatized were analyzed by some of my students and myself for many years, and the evidence gathered — including member surveys — proves the opposite. If there were cooperatives with members who knew their rights and the advantages of the cooperative model, it was precisely those cooperatives.
It is curious that this motto that “in Cuba, there is no cooperative culture” is spreading without much questioning. We Cubans know the deterioration of values that we have experienced since the crisis of the 1990s. But all the cooperative experts from around the world who have visited and investigated Cuba come out convinced that our country is a very fertile ground for the development of cooperatives, precisely because of the high levels of formal education, equality of social relations (seeing ourselves as equals on an equal footing) and solidarity, relative to most of the countries where cooperatives have expanded.
This motto seems a useful justification to explain the fact that few new non-agricultural cooperatives have been created in relation to private MSMEs: something that, given the void in the institutional framework necessary for their development, should not surprise anyone.5
From my point of view, the slogan “there is no cooperative culture” is being used to justify or hide the abandonment of the promise of a cooperative promotion policy in Cuba; a promise that has remained only in the pages of the Guidelines, the Conceptualization, the Constitution and some other national and ministerial policy that have not been made public.
The responsibility for these privatizations of cooperatives must be assumed in the first place by the leaders of the privatized cooperatives, but also by the legislators and state officials who favored or allowed these events.
What is known about the cases of privatized cooperatives is that the initiative came from the presidents or administrators, not from the other members. These individuals who until recently had been cooperative leaders and recognized cooperatives as more socialist business forms even than state enterprises had previously been state entrepreneurs, at least one with a high position in a ministry; all with good relations with foreign suppliers and officials from their respective ministries.
These individuals, who allege that the new regulations favor private MSMEs (which in practice is true even though it is not in the interest of legislators, as will be explained in future work) and that state officials, investors and suppliers have closed them the doors to the cooperatives, have convinced the former members of the cooperatives that they should be dissolved.
They have taken advantage of the economic needs and despair of these people resulting from the current economic crisis to, in exchange for a little money, convince them to give them the assets of the cooperative, and everything they had managed to build during a decade of cooperative management.
In the best of cases, the former members of the cooperatives were invited to become owners/shareholders of the new private MSMEs; but this was not an option for those who did not have the necessary amount of money or were not considered “highly productive.” At least in one of the cases of privatization of cooperatives, this happened in an opaque way: the decision was not made transparently and there was never a General Assembly to make such a decision, but rather the minutes were sent for signature.
The responsibility of the legislators who conceived and approved Decree Law 47/2021 (Council of State and Ministry of Economy and Planning) is greater, for falling into the trap and promoting the idea of “same/similar rules of the game for all economic actors.”
It was enough to have listened to the warnings from experts in cooperatives from Cuba and from other countries that have made official visits (Canada, Italy and Argentina) about the need for a General Law on Cooperatives where the State commits to promote them, given the particular identity and the positive external factors of these organizations.
Decree Law 47/2021 in general constitutes a step forward since it finally generalized the experiment with non-agricultural cooperatives and recognizes the universal principles of cooperatives (Article 2.1). However, because it is limited to a Decree Law and in a legal package also intended for self-employed workers and MSMEs, this legal package has three serious shortcomings: 1) Decree Law 47/2021 does not establish indivisible reserves (which cannot be distributed among the members during their dissolution)6 for cooperatives and 2) equates the processes of dissolution of cooperatives with those of private MSMEs; and also 3) Decree Law 46/2021 on MSMEs facilitates the conversion of cooperatives to MSMEs while DL 47/2021 does not establish a process of conversion from MSMEs to cooperatives.
Let’s hope that these errors in the legislation for non-agricultural cooperatives will be corrected soon. Let’s remember one of the main lessons from the collapse of the USSR, where cooperatives — which really weren’t such because they were just shareholder societies — were used as a front to privatize practically all state property.
In China, with the legal framework of cooperatives that misunderstood them — there are very recent new regulations — as a sui generis shareholder society, and in Vietnam, with the legislation for the “equitization” of state enterprises, something similar has happened, although not to the same extent as of the USSR. Similar processes of privatization of cooperatives have occurred in other former socialist countries such as those of the former Yugoslavia.
The specialists in cooperative law and its legal and regulatory framework who have been visiting our country and providing their experience have warned of the serious error of understanding cooperatives as sui generis shareholder societies: this is nothing more than a total lack of understanding of the cooperative figure.
It’s not too late. Making the following changes to Decree Law 47/2021 can protect the members of current cooperatives and the cooperative sector:
- In Article 74, subsection 74.6 should be added that establishes that at least a part of or ideally all the reserves (and even also the funds) that the cooperative creates — as established by the cooperative in its bylaws — are indivisible or undividable, and therefore that part of the “resulting assets” cannot be distributed among the members when the cooperative is extinguished or dissolved.
- Article 84.1 paragraph a) should establish the minimum necessary quorum of 75% and the early call for the General Assembly that decides the dissolution of the cooperative, as well as the need to achieve more than 75% of the votes to approve the dissolution.
- Article 89 should establish that the reserves and funds that have been declared as indivisible (undividable) in the cooperative’s statutes must go to another cooperative or, ideally and once the entity in charge of promoting cooperatives is established, to its fund for the promotion of new cooperatives.
- In Article 91, instead of establishing administrators as liquidators, administrators should be prohibited from being liquidators; the liquidators should be elected by the General Assembly, complying with the quorum, call and voting mentioned in article 74, or in case it is forced, by a commission established by the cooperative promotion entity.
- In Article 92 it should be clarified, as proposed for Article 89, that reserves and indivisible/undividable funds cannot be included in the “project for the division of the resulting assets between the members.”
Likewise, in Decree-Law 46 on MSMEs, the second special provision that establishes the ways by which a cooperative can become an MSME must be repealed, since in Decree Law 47 on non-agricultural cooperatives there is no special provision that facilitates conversion from MSMEs to cooperatives.
In the event that a provision is established that facilitates the process of conversion of private MSMEs to cooperatives — something that undoubtedly should be considered above all for MSMEs that are close to the limit of 100 workers —, said second special provision could be maintained specifying that reserves and indivisible/undividable funds must be contributed to the cooperative promotion entity and therefore cannot form part of the capital or assets of the new MSME.
After the serious errors identified in these two Decree Laws (46 and 47 of 2021) are corrected, the process for the elaboration of the General Law on Cooperatives should begin at once.
This has been written about before and it is more necessary than ever to save the economy of our country and the hopes of our people for a better, truly socialist future, that is, one that benefits the majority and not the few.
I only reiterate here the vital importance of the specialized promotion and supervision entity (given the void that Decree Law 47 has also created in this regard, and taking into account that it should not be limited to an entity that also promotes MSMEs), and the organization of representation, all this for all cooperatives, agricultural and non-agricultural.
We need second-degree cooperatives as soon as possible, as well as consumer and multi-participant cooperatives.
It is imperative that Cuba urgently establish a comprehensive policy for the promotion of cooperatives! We cannot wait another decade to comply with what is established in the Guidelines, Conceptualization and our current Constitution.
If other Latin American states, the European Union and those of the OECD work and advance in the promotion of cooperatives, we cannot stay behind. We have plenty of potentials to achieve it.
1 I do not share the names of the cooperatives and people involved because those involved asked me not to, but at least two of these cases are known to the Ministry of Economy and Planning (MEP) officials. A review of the ONEI registry of cooperatives can reveal which ones have been terminated and, looking for the names of the directors of these cooperatives among the members of the new private MSMEs, one can find out which ones have been privatized.
2 See: Resilience in a Downturn: The power of financial cooperatives and “Cooperatives can be the path to greater resilience in the midst of the crisis due to the coronavirus.”
3 In the current regulations, this range is 1 to 3. As explained in other papers, it should ideally be 1 to 5, in order to attract and retain workers in high-income activities.
4 Due to lack of space, an annex to my doctoral thesis will be reproduced in another work where I address the different prejudices or false arguments that are used to reject cooperatives and I refute them with empirical evidence from studies in Cuba and other countries.
5 Cuba has, in relation to its population, the second number of cooperatives in the Americas, and if only worker and producer cooperatives are counted (not consumer cooperatives, which are the ones that prevail in other countries) we are among the first on a world level. It is also important to mention that the ratio between the new non-agricultural cooperatives and private enterprises is actually higher or at least similar to what existed before the new legislation in force. See Piñeiro Harnecker, C.P. (2023). Comparing Governance Systems in Cuban Cooperatives: A Study of Producer and Worker Cooperatives in Agriculture, Industry, and Services. In: Novković, S., Miner, K., McMahon, C. (eds) Humanistic Governance in Democratic Organizations. Humanism in Business Series. Palgrave Macmillan.
6 In fact, the third universal cooperative principle “economic participation of the members” establishes that “the creation of reserves, at least a part of which would be of an indivisible nature.…” Cooperatives, to be cooperatives and not just associations or capital societies, must have a part of their assets owned by the cooperative (in the form of reserves and collective funds) and not only individually by its members. Some part of the collective assets, neither pre-established but by decision of the members, must be indivisible or undividable among the members in case the cooperative is dissolved. In fact, in the guidelines given by the ICA for the implementation of cooperative principles, in relation to the third principle (pp. 36-44) it is stated that since 1995 the idea proposed by Robert Owen in 1832 “In order to guarantee, without the possibility of failure, the achievement of these desirable objectives, it is the unanimous decision of the delegates gathered here that the capital accumulated by such associations should adopt an indivisible character” [bold original] (The Guidance Notes on the Cooperative Principles ICA, 2015). See also: The Capital Conundrum for Co-operatives (ICA, 2017).
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