Twice this week I’ve heard this idea in two different contexts, although always referring to the state enterprise. “Doing away with the mechanisms that tie down the autonomy of the state enterprise” was one of them; “Our duty is to do away with the mechanisms that hinder the efficiency of the state enterprise” was the other. They were not said in any particular context, which forces me to think that there is sufficient conviction among decision makers that there are “mechanisms”―institutional and organizational arrangements―that are, at least in part, responsible for state-owned enterprises not meeting expectations.
In fact, we could say that there are institutional ―regulations and incentives― and organizational―administrative structures― arrangements which are part of all those obstacles that make our enterprises―not only the state ones, but also those other non-state―not as efficient as they should be. We can also say that many of these obstacles are not new, they date back many decades and even today, because of that fabulous ownership of bureaucracy so similar to that of matter (neither created nor destroyed, only transformed), they remain not only alive, but enjoy good health.
Just a few months ago, in the Congress of the Association of Economists of Cuba, in the commission that dealt with the state enterprise, the colleague who presided at the table read a diagnosis of the state enterprise that largely portrayed the current woes of our state enterprises today. When he finished reading that document he told us that it was from the rapporteur of a previous ANEC congress that had been held in the early 1980s. I bring it up only to illustrate how solid these mechanisms are, how much they have learned from each other, how much capacity for reproduction and adaptation they have.
Thousands of pages have been written about the state enterprise. Colleagues like Ileana Díaz, Luis Marcelo, Luis del Castillo, Humberto Blanco and many others, especially those who were professors of these professors, have approached this issue from different aspects. In all the congresses of the National Association of Economists of Cuba (ANEC) this has been a fixed issue. Thousands of economists from the provinces have addressed the problems of their enterprises in their respective territories in each of the scientific events that have been held over the past 40 years. Hundreds of consultations on improvement processes document relevant information at the micro and organizational level about the ills that afflicted (and afflict) the state business system.
At this point a lot of scientific research has already been carried out in this regard. If only what was written in the previous Communist Party of Cuba (PCC) congresses was reviewed, what was written about it in the Congresses of the Association of Economists of Cuba, as well as other diagnoses made from academic centers, I believe that many coinciding issues could be found―even in different time periods―which can give a clue as to what course to take.
There hasn’t been a shortage of formation and training. The training courses for entrepreneurs in Cuba are more abundant than the marabú in our fields. Since the time of the Higher Institute of Economics, but even much earlier, resources have been devoted to training our entrepreneurs―by the way, I have tried to find similar institutions in successful countries, Singapore, South Korea, Norway, etc., but haven’t found them.
But it is also true that you learn every day and that one way to learn, perhaps the most effective, is to learn by doing. Perhaps that’s where one of the obstacles lies, how much of what our entrepreneurs learn in these courses can they apply later given the institutional and organizational environment in which state enterprises are submerged? I’m convinced that it is not because our entrepreneurs don’t have a good intelligence quotient and because they can’t learn, in fact, almost everyone approves with outstanding grades.
A picture of the Cuban business world appears in the 2018 Statistical Yearbook.
In this picture, the non-state sector as a whole, which is 31% of the total number of employees in the country (4,482,700 persons), does not appear, the private sector! The sector that today is responsible for 12.9% of total employment (580,800 persons) and that contributes to the budgetary income a great deal of the four billion Cuban pesos that are collected through personal income tax despite the existing regulations that are of little help to their dynamics, their qualitative and their quantitative growth, as well as their functional integration with the rest of the national economy. Something similar happens with the non-agricultural cooperative “experiment.”
Nor do joint ventures and other forms of international economic associations appear, which are responsible for an important part of Cuba’s exports (nickel, rum, cigars, tourist services, the very dynamics of the Mariel Special Development Zone, with its more than 40 enterprises), so this picture reflects only part of the Cuban business world. However, its evolution produces interesting elements [1].
This evolution has been as follows, from 2013 to 2018:
- The total number of entities has been decreasing year by year, from 10,248 to 9,560.
- Enterprises decrease from 2,235 to 1,776.
- Mercantile societies remain practically the same.
- Cooperatives in general decreased by more than one hundred, from 5,420 to 5,307.
- Within cooperatives, the so-called non-agricultural grew from 198 to 434, although since 2017 they haven’t been growing.
- The Agricultural Production Cooperatives (CPA) and the Credit and Services Cooperatives (CCS) also decrease, the first from 909 to 878 and the second from 2,502 to 2,468.
- Budgeted units are also reduced by more than one hundred units.
The absolute reduction in the number of enterprises is something that doesn’t look good at all. A part of that decrease can be attributed to the conversion of some enterprises into Basic Business Units. Of course it would also be very good to be able to have access to the dynamics of the creation and destruction of enterprises in Cuba, but this is more difficult. In any case, the reduction in the number of enterprises and the number of cooperatives must have a negative impact on tax collection, since the tax base of the sector that contributes the most and should be the backbone of the country’s transformation and growth decreases.
The other issue is more conceptual. It is very difficult to know how many state enterprises must exist in Cuba. However, there is at least one conceptual element that can serve as a guide and it is the concept of fundamental means of production that appears in the Conceptualization document which limits this very decisive issue to those who play a “strategic role in economic and social development, in the country’s strength, sustainability and national security.”
Could it be that all those hundreds of enterprises meet those requirements? Is the production of oil or electricity as decisive as the production of rubber flip flops? Is it decisive for the country to keep thousands of retail units, including warehouses, under state ownership and management? Are state grocery stores and coffee shops as decisive as the production of medicines and biotechnological products? What is more decisive and strategic for Cuban socialism, investing in repairing restaurants or putting that money into repairing and improving the material conditions of polyclinics and hospitals, of schools and research centers?
Many other questions could come up from comparing what appears in the conceptualization regarding the definition of fundamental means of production, which must assume the form of state property and all others that not even by chance could reach that condition. The conceptualization document, without a doubt a programmatic document, was approved in the previous congress of the PCC. In just one year and a bit we will have a new Congress.
Perhaps I’m very mistaken, but I am one of those who think that an important part of the obstacles that hinder our state-owned enterprises have to do, first, with the resistance to adopt the concept of fundamental means of production defined in the conceptualization; second, with the erroneous idea, inherited from other times and contexts, that the strength of the socialist economy is in the number and size of the enterprises that are under that system rather than in its really strategic character in the present and in the future; in the uncertainty that such a change must produce and the costs inherent in the opportunity of doing it or not; in the created interests, in that special belief of our people of the “mine,” in the most private sense that term may have and that so many times has been confirmed by the Comptroller General of the Republic; in the fear of abandoning the tranquility of being “state” and of taking the risks of ceasing to be that.
None of these obstacles is something material. You don’t need a Cuban peso, or a dollar, or a euro to start this change, I think it would rather allow us, at the beginning, to save many dollars [2] and then produce many more.
So let’s make the list of the obstacles that are hindering and that way we can do away with the mechanisms that tie down. At the risk of being wrong, I propose some:
- Planning system that despite being changing continues to hinder the so-called business initiative.
- Verticalized structure of the business system, which is expressed in the permanence of the real subordination of the enterprises to the OSDES and of these to the ministries.
- Payment systems that limit the so-called business “autonomy.”
- There is no “risk culture” and few incentives to assume it versus high costs of doing so.
- Weak systems of institutional support for exports.
- Little “aggressiveness” of the national banking system.
- Weak incentives for innovation. Our state-owned enterprises are not rewarded for creating and placing new products in the national and international markets, but for “meeting the plan.”
- Excess state intermediation: let’s make the critical route of an export effort, how many entities are involved between the national producer and the final customer, how many of them are expendable, how many of them must compete for the national producer and not enjoy the privilege of being those that export, how long does that process take? And then there are imports and importers.
- Little, very little decentralization of export activity; provincial governments have little prominence and have much less capacity to decide.
- Distortion of the fundamental prices of any economy; exchange rate, interest rate and salary.
These are some of those obstacles, they should barely represent 1%. So, if we want to help, even at the risk of being wrong, let’s help to identify others.
Because our country needs it and not because we are in critical times, but because we can only have development by being realistic and critical with what we do daily and contributing in some way to identifying the obstacles that hinder that aspiration.
Notes:
[1] Cuba is not the one that benefits from this lack of information about successful sectors.
[2] Let’s just think about the amount of gasoline and oil the country would save by “converting” a great deal of “state cars” into non-state cars, without gasoline allocated at subsidized prices. The same could be said of electricity consumption.
Author
Dr.C Juan Triana Cordoví
