Organizing Cuban Economic Enterprises in the Wake of Reform

Organizing Cuban Economic Enterprises in the
Wake of the Lineamientos—Between Corporation,
Cooperatives and Globalization

Larry Catá Backer
W. Richard and Mary Eshelman Faculty Scholar and
Professor of Law ; Professor of International Affairs
Pennsylvania State University
lcb911@gmail.com

XXX International Congress of the
Latin American Studies Association
2012 Annual Meeting
May 2012

© Larry Catá Backer 2011

Order, Discipline and Exigency

•This essay examines the consequences of the current approach to the
creation and management of economic enterprises within Cuba.
• That approach is grounded on the creation of distinct spheres of
economic activity
• Private and centered on consumer goods and services
• Public, centered on the reorganization of state managed economic
activity
• National, centered on the development of
• Regional, centered on the development of state to state economic
activity under the ALBA model
•This requires a careful balancing of the logic of a centrally planned
and public oriented Marxist Leninist approach to economic control and
the logic of the framework of a market’s based system of economic
globalization
• That balancing produces the potential for contradiction with its
heart in the tension between the forms of economic globalization
and the current conventional framework of Cuban Marxist
Leninist state organization


•First, examine the development and structure of economic organization
structured around:
• a limited space for individual economic activity in the shadow of but not
directly managed by the State.
• The Lineamientos’ provisions and the allocation of permitted forms of
economic activities and its limits:
• Private individual enterprise
• Corporations
• Cooperatives

•Second, considers the cooperative in more depth:
•Suggest its benefits and limitations within confines of Cuban political ideology
and what it may mean for the future course of the development of Cuban State-
Party ideology.

•Third, provides a contextual analysis of the Cuban approach within the
structures of Cuba’s regional economic engagements:
•The internationalization of the Cuban model through the structure of ALBA


Failing Economic Model and the Development of the
Lineamientos
Acknowledgment that current system of state organization and
economic model ineffective.

Acknowledgment that something had to be done.

First, prior to the introduction of the Lineamientos: limited
opening up of sole proprietorships and small farm holding

Second, development of the Lineamientos and public circulation
(Autumn 2010). Party developed, State implemented.


Distribution and approval of the Lineamientos
Widespread democratic circulation and consultation in and
outside of Cuba
Consideration and unanimous approval of the Lineamientos at
VIth Party Congress of the Communist Party of Cuba
313 Sections—Suggestions for action affecting nearly every
aspect of Cuban economic life.
Companion booklet (Tabloide)--summarizes the changes between
the draft Lineamientos and the official reasons for the changes.


Experimentation and the Focus of Lineamientos
Since the adoption of the Lineamientos in 2011, Cuba has
embarked on its own version of economic experimentation within
its own sense of its Marxist Leninist organizational principles.
Some of the elements of this experimentation have been widely discussed
and criticized—from the efforts to produce a rigidly controlled class of
proprietorship businesses, to the limited and highly regulated efforts to
open agricultural cultivation to farmers.

Less well treated are the institutional forms in which economic
development is to be undertaken.

Ordering Cuban Private Economic Enterprises

The Lineamientos de la política económica y social
del partido y la Revolución
The Lineamientos serve as a basis for reordering the failing economic
framework within Cuban socialism.
Although the Lineamientos focus predominantly on economic reform,
the Lineamientos also address the forms of economic organization).


Lineamientos

A Danger of Contradiction:

Starts with a determination to preserve the gains of the Revolution
but then bows to the realities of the economic situation that has
brought the Party to the revaluation of its values.

 Guarantee changes to the system by which services are
provided, but limit those promised changes to those possible under
existing economic circumstances.

Focus on internal development but with a necessary eye to the
place of Cuba within a globalized economic order
 Bounded by the conceptualization of globalization within the
ideological parameters of ALBA.


Permitted Forms of Economic Activity
Private Individual Enterprise

Corporations

Cooperatives

Grannacionales


For Individuals--Sole Proprietorships
Backbone of privatization:

 Large scale economic activity remains the sole province of the state.
 The state has been careful to limit the sorts of occupations or economic
activities to which liberalization applies.
About 178 occupations are listed.
 suggests a focus on the lowest level of economic activity--that is on
activity with respect to which aggregation of labor or capital is not required.

 The small local sole entrepreneur, then, is the model that is to be
cultivated at the heart of the reformation of the political economy
of Cuba.
One can view this either as bottom up development or
as the necessary bifurcation of the economy, with a market based
local sector and a state sector for everything else.:


Sole Proprietorships
It clearly emerges that the principal objectives of the state are to
convert workers from cost items to revenue generators.
The hope is that as a result people will have a larger
assortment of goods and services available and the state will
not be burdened with the subsidies necessary to provide
these items.
 Work flexibility is taken to redesign the political economy of
the Island to increase individual productivity and efficiency as
well as to provide a means through which workers can feel
more useful, change popular conceptions of work, and to
reduce its stigma.
And the revenue generated is not merely available to the
producers but also to the state in the form of taxes


Sole Proprietorships
In addition to strict controls on the sorts of occupations subject
to liberalization, the State will tightly control the economic
activities with respect to which private markets will be permitted.
 "Alhuerdi explicó igualmente que el otorgamiento de nuevas
autorizaciones para el ejercicio del trabajo por cuenta propia se
mantiene limitado por ahora en nueve actividades, porque no existe un
mercado lícito para adquirir la materia prima, aunque se estudian
alternativas que lo viabilicen." Leticia Martínez Hernández, Mucho más que
una alternativa, Granma, Sept. 24, 2010.
 http://www.granma.cubaweb.cu/2010/09/24/nacional/artic10.html
Markets control is indirect--it is focused not on the markets for
activities permitted, but rather focuses on markets for materials
necessary to conduct business in a wide variety of activities that
might otherwise have been permitted.
Access to these markets will be carefully controlled and changes
made slowly over the course of 2011 and beyond.
At its base, these secondary markets will be treated as part of the
controlled sector.

http://aviewtothesouth.blogspot.com/2007_01_01_arch
ive.html


Corporations Problematic for Marxist Leninist States
Corporations constitute property in the hands of their owners.
But corporations also constitute collective persons, and in that respect
mirror the state.
 As juridical persons, as great collectives of people and resources,
operating in accordance with their own constitution, and serving the
needs of their constituents, corporations operate as institutions, with
social, political, and economic power.
Marxist-Socialist states are grounded on the fundamental notion of state
monopoly over the social, political, and economic organization.
Collectives of people, of things, operating independent of the state, even if
subject to state regulation, deprive the state of its monopoly position, and,
if they can amass enough power, threaten the fundamental ordering
principles of state organization.
 Retaining an organization based on the suppression of all
collectives other than those “owned” by the state provides the
simplest and most effective form for safeguarding the Marxist-
Socialist character of the state.


Corporations and Foreign Investment
Since the 1990s, Cuba has revised its Constitution and laws to permit joint
ventures between state enterprises and foreign corporations, and to provide for the
operation of foreign corporations within Cuba.

Cuban economic policy limits the economic activities of foreign corporations and joint
ventures to export-oriented activities within a few small economic development zones.

 The internal Cuban economy is substantially insulated from the activities of
these enterprises, and Cuban individuals are substantially prohibited from
forming or investing in these export-oriented enterprises.
 In other respects, Cuba retains a commercial code little different from the
Spanish colonial law it inherited at the end of the nineteenth century and a
primitive corporations law.


Corporations Under Lineamientos
The corporation remains an instrument of state policy.
The socialist system continues to frame economic organization (P. 1)

For that purpose socialist state enterprises may be formed
These constitute the principal form of national economic activity (P. 2)

And additional forms of economic organizations may be recognized (mixed
enterprises, cooperatives, individuals operating as sole proprietors, various
agricultural ventures, all organized to increase economic efficiency (P. 2)

Individuals are not permitted to aggregate property in juridical or natural persons.
(P 3).


Corporations Under Lineamientos
Cuban foreign investment law has been criticized outside of Cuba.

The system is highly inefficient. Individual authorization is required for every foreign
entity.
The areas set aside for investment are limited and designed more like quarantine zones
than economic zones. They are meant to prevent all but the most controlled contact
between Cubans and foreigners.
 Moreover, the underlying law of contract through which business and investment
relationships must be effectuated within Cuba remains, by global standards, primitive.


Corporations and the Rejection of the Chinese Model
The arguments

The Chinese model does not work

Neither Maoism Nor Stalinism Has Overcome the Contradictions of Marxist-
Leninism and the Autonomous Private Economic Collective

Cuban Stalinism is Incompatible with the Maoism Critical to the Chinese
Model

Cuba Remains Isolated From Global Capital Flows

American Policy May Make Adoption of the Chinese Model Impossible

Cuba May Not Yet Be Able to Compete in the Global Marketplace

http://en.mercopress.com/2009/11/12/cuba-drastically-
slashes-farm-bureaucracy-to-boost-food-production


Cooperatives Under the Lineamientos (P. 25-29)
First level (primer grado) Cooperatives are recognized an economic organization
with legal personality who aggregate goods and labor
Interests in cooperatives have the character of social property that may not
be negotiated (in contrast to shares)
They may enter into contracts with other entities and natural persons
They may also determine the distribution of funds to participants

Second Level (segundo grado) cooperatives made up of first level cooperatives
Can be formed as separate juridical persons
Objective to facilitate the business of the associated cooperatives.


Cooperatives
As an alternative, the Cuban state apparatus, and its intellectual
elites, have been exploring an alternative--the cooperative form.
Much of the theoretical justifications and arguments supporting this form
as an acceptable alternative for the organization of private economic
activity has been recently explored in a collection of important essays
published as Cooperativas y socialismo: una mirada desde Cuba (Camila
Piñeiro Harnecker, editor; La Habana: Editorial Caminos 2011)(ISBN
978-959-303-033-5).

For cooperatives to work as an alternative acceptable under the
current regime's assumptions about the corporate form, it would
be necessary to distinguish between the autonomous governance
form at the foundation of the corporate form and a cooperative
form more amenable to state supervision and control.


Cooperatives versus Corporation
 Cooperatives involve aggregation of effort divorced from
ownership of means of production in which labor controls
management decisions
A co-operative is a group or association of persons that have joined
voluntarily to satisfy economical needs and aspirations, social and cultural
that are made common thru a business of common democratic own
property, autonomous and open.
 What is important in a co-operative is no who is the owner of the means of
production, the important thing is that the collective of workers can have
access to them, thru a truly democratic management.
 Meant to apply to small aggregations of individuals
 No aggregation of capital


Recent efforts to translate cooperative form into law
Recently, the Cuban state has moved from theory and intent to
practice.
 It was announced that Mafrino Murillo, the Vice President of the
Counsel of Ministers, confirmed the preparation of new rules for the
operation of cooperatives outside the agricultural sector
 ("Vicepresidente del Consejo de Ministros, Marino Murillo, confirma
preparación de decreto ley y reglamento para ampliar las cooperativas
al sector no agropecuario.")(From Cuba priorizará sector cooperativo,
Inter Press Service, March 27, 2012). The announcement was timed to
coincide with the visit of Pope Benedict XVI and was meant to suggest
sustained movement to implement the Lineamientos approved by the
Party and State apparatus, without encouraging political reform. (Ibid).

The move to liberalize the use of cooperatives is meant to be part of the
larger strategy of opening the agricultural sector, reviving the tourist,
extractives and biotechnology sectors without significantly altering the
nature of political control of economic productivity.


Cooperatives
 Is the co-operative of production an adequate organization form
for a society compromised with the construction of socialism?
Three main concerns
 Utopia and impossible to implement
 Difficult to distinguish it from state owned enterprises.
 It can become too autonomous and effectively mimic corporations

Cooperative form:
When explaining what a co-operative is, the fundamental differences that
exist between a co-operative and state business.
 No representative organ of governance (Board of directors)
 Instead workers are directly involved in the decision making process of the
enterprise.
 it is a principle established in the rights of the workers in its internal
regulations, and exercised by departments (organs) and procedures that are
designed and approved by them


Cooperatives
 Role of the state
 responsible for coordinated planning
 But tension between the autonomy of the cooperative as focused on
worker desires, and the larger issues of state needs.
 Discipline through the imposition of socialist welfare maximizing
sensibilities (drawn from ALBA principles discussed below).
Consider direct links between cooperatives and state enterprises or
ministries.

Role of Markets:
Several points of contention.
 Should cooperatives be able to hire employees or should all workers be
members of the cooperative
 Pricing for goods and services: set by state or by the cooperative
 Recognition that over taxation would be passed through to consumers in the
form of higher prices

ALBA beneficia a 75 millones de personas mediante las
empresas grannacionales
http://www.lavozdelsandinismo.com/alba/2011-10-26/alba-
beneficia-a-75-millones-de-personas-mediante-las-empresas-
grannacionales/


Internationalization: Grannacionales as Ideology
The organization of the Cuban economy and its understanding of the
notion that property remains a prerogative of the state is embedded in
Cuba’s regional foreign relations.
The conception of grannacional is divided
into three components,

historical and geopolitical,

socio-economic, and

ideological.


Grannacionales as Ideology
The first, historical and geopolitical, is grounded in the sense that the
business of the construction of Latin America, started with the wars of
liberation of the 19th century, is unfinished. Its object is integration at the supra-
national level, that is, to understand grannacionales as the formal expression of
efforts to create a single nation.

The second component, socio-economic, understands the commercial
activity and its traditional forms as a functional means to reach the political ends
of integration. Grannacionales are meant to serve as the great vehicle for state
directed development.

The third, ideological, envisions the grannacional as functional integration
devices advancing political and economic aims of the state. Specifically,
the grannacional enterprise has as its objective the manifestation of a united
front by generating a multi-national block for the structuring of sovereign regional
politics.


Consequences when looked at from the perspective of
conventional economic globalization:

--efficiency is measured differently than in classical economics or under
the framework of conventional economic globalization. It is understood
only in relation to the aims of the state in meeting its political goals,
measured to some extent on the state’s assessment of its ability to meet
the needs of a majority of its people. Both the political and needs
objectives are also constructs of state policy.

--This produces something of an inversion from concepts in classical
economics.


Implementation: proyectos grannacionales” (PG) and “empresas
grannacionales” (EG) as engines.

PG’s: reorganization of key sectors of state activity around which state to
state activity is contemplated.
key fields of activity, encompassing political, cultural, economic,
scientific, and industrial activity.

This organization is grounded in ALBA’s normative construction of
principles of “just trade” and solidarity commerce,

Three principles—
barter transactions,
non-reciprocity in trade relations, and
differential treatment of trade partners to advance
national and development objectives
(commercio compensado, no-reciprosidad, y trato diferenciado


Implementation: EG’s as socialist multinational

EG’s are entities created to carry out the economic and trade activity
organized through PG’s.
If PGs are meant to organize productive activities, EGs are meant to
implement them in an orderly way.

Organization: EGs are all state owned enterprises, established a
separate juridical persons, interest in which is measured through share
ownership by participating ALBA Member States. (ALBA Jan. 27, 2008).
But they might be organized in other ways by special legislation or as a
department of a ministry.
PG and EG projects are not limited to be established at the supra-
national level—single state PGs and EGs may be created as long
as they are consonant with ALBA principles and goals.

Relationship between PG and EG is not strictly linear—though it is
clear that every EG must derive from a PG, not every PG will require the
establishment of an EG.


The Objectives of EGs as Socialist Multinationals

Embody an alternative to the model of the private multinational enterprise.
EGs are said to invert the traditional maximization model by seeking to maximize
the welfare of the objects of economic (or other) activity, rather than those
involved in the production or financing of that activity.
--are autonomous and
--might enter into joint venture arrangements with private sector
enterprises.
--primary focus of activity is within the ALBA zone; “excess” activity
directed outbound.

EFFECT: regionalist globalization model with economic activity directed
by states rather than through markets.
This suggests a new face for traditional command economy
activity, but it is unclear whether it also suggests a change in function.


EG Operations: Stakeholder Welfare Maximization,
“Fair Price” and “Just Trade”.
EGs embrace the form of organization and production of private multinational
corporations, including supply and production chain principles, and resource
procurement optimization.
--But their intense connection to states makes them both regulatory and
commercial vehicles.

But pricing grounded in notions of “fair price”
--definition is ambiguous, though likely grounded in principles of “just trade” and
solidarity identified by the state.
--can be understood as a political rather than a conventionally economic principle.

That is in line with ALBA’s core notion of the conflation of politics and economics.
That, in turn, is in line with ALBA’s core political principle of the inseparability of
public (sovereign) activity and market activity of state or private actors.


What Makes the Concepto Grannacional innovative?
1. Internationalize state-based central planning model.

2. Adopt conventional organizational forms from emerging private markets
framework of economic globalization.

3. Changes conventional welfare maximization model from a focus on the
shareholder (or the firm) to something like national welfare maximization effected
through firms.

Internationalizes the corporate model of the Cuban
State.
-- state-based central planning and control model within a regional trade
zone.

Cuba lay-offs reveal evolving communism, BBC News Latin America, Sept. 2010:
http://www.bbc.co.uk/news/world-latin-america-11302430


Moving Forward

Complexity and Contradiction:
Contradiction of the efforts to transform Cuba’s economic systems without
changing its social systems.

Nothing changes in the fundamentals of the organization of the Cuban state,
yet everything changes within the context of that unchanging normative
framework

State continues to control sectors of production and retains a monopoly
on operation in corporate form. The people are expected to engage in
autonomous economic activity meant to generate wealth for themselves
and the state (through taxation) and the Party is meant to provide the
guidance.


Moving Forward
Limited Liberalization Guarantees Continued State Control and
Party Influence:
Focus of the changes is on the creation of a class of sole proprietor.

Liberalization occurs only at the lowest level of economic activity

Activity with respect to which aggregation of labor or capital is not
required.

Large scale economic activity remains the sole province of the state.

Principle objective labor productivity that is more self directed. Aggregate
activity, both internal and external remains the province of the state.


Moving Forward
From Cost Item to Income Generator:
The Cuban government hopes that a rationalization of public services
provided will increase productivity via citizens’ sense of the necessity to
work as a means of generating income

The Cuban government hopes that people will have a larger
assortment of goods and services available and the state will not be
burdened with the subsidies necessary to provide these items.

Moreover, the revenue generated is not only available to the income
generators, but also to the state in the form of taxes.


Moving Forward
Change at the Margins:
Changes to the Cuban political economy assumes a coherent shape
that is hardly revolutionary or otherwise points to a rejection of its
current framework.

And, indeed, the fear of operation in corporate form, in
aggregations of people and capital that appear autonomous of the
state (something permitted in China) may do more to reduce the
success of this opening than any machination of Cuba's external
enemies.
 Sometimes a mania for control may prove fatally counterproductive
to the maintenance of that control The Chinese Communist Party
understood this in 1978 (though it took a generation to produce
results);
it is not clear that the Cuban Communist Party is willing to open
itself to that lesson.


Moving Forward
Continued Contradiction and Inherent Challenges:
Many of the economic provisions, and the overarching purpose of the
Lineamientos, will make it difficult to preserve and improve the Cuban
economic system in its current form.

First, the current economic and institutional model is
unsustainable.
 There is little in the form of institutional structures to produce and absorb change.
 The pressures and reliance on central planning will continue to bottleneck the
economy.
Second, the partial opening of the market may present difficulty in
predicting industries and technologies upon which to direct limited
resources.
 The issue of CORRUPTION remains problematic—an internal CCP concern but still
reluctant to go public on corruption; compare China.
 The exportation to ALBA systems only extends the difficulties


Conclusion
 A careful review, then suggests that the great changes to the Cuban
political economy assumes a coherent shape that is hardly
revolutionary or that otherwise points to a rejection of its current
framework.
This is change at the margins, even if understood as significant
within the framework of Cuban political thinking.


Conclusion
 Control remains the key, and the avoidance of the creation of
potential challengers to state-Party power critical.
 The State controls private economic activity in three ways:

 First it does not permit aggregations of economic power by individuals.

Second, the State limits the occupations with respect to which private
activity is permitted.

Third, the state tightly controls markets open to private activity however
it is described.

For the state: aggregations in corporate form, ventures with foreigners
and access to foreign capital.
For the individual: small business tied closely to the delivery of consumer
goods and services locally; not meant to compete with the state or state
SOEs


Conclusion
That control framework extends beyond the internal organization of the
Cuban State
Replicated in the ALBA group and the organization of grannacionales.
General focus rejects maximizing shareholder value, the ALBA entities
maximize national welfare, as those things are measured by the states who
participate (and regulate those markets).
ALBA Member States have sought to turn the conventional economic model
from one that privileges private interests to one that adopts the forms of
private organization, but in which the state acts as both regulator and
shareholder.

Whether the experiment will succeed remains to be seen, but the search for
forms of economic organization that are not necessarily grounded in
shareholder wealth maximization, and that serve social goals, even those
controlled by the state apparatus, may provide insights and models of use
elsewhere and for other purposes.


Cooperatives Under the Lineamientos (P. 25-29)
LAS COOPERATIVAS
25. Se crearán las cooperativas de primer grado como una forma socialista de propiedad colectiva, en
diferentes sectores, las que constituyen una organización econó-mica con personalidad jurídica y
patrimonio propio, integradas por personas que seasocian aportando bienes o trabajo, con la unalidad de
producir y prestar serviciosútiles a la sociedad y asumen todos sus gastos con sus ingresos.

26. La norma jurídica sobre cooperativas deberá garantizar que éstas, como propiedadsocial, no sean
vendidas, ni trasmitida su posesión a otras cooperativas, a formas de gestión no estatal o a personas
naturales.

27. Las cooperativas mantienen relaciones contractuales con otras cooperativas, em-presas, unidades
presupuestadas y otras formas no estatales, y después de cumplido el compromiso con el Estado, podrán
realizar ventas libremente sin interme-diarios, de acuerdo con la actividad económica que se les autorice.

28. Las cooperativas, sobre la base de lo establecido en la norma jurídica correspon-diente, después de
pagar los impuestos y contribuciones establecidos, determinanlos ingresos de los trabajadores y la
distribución de las utilidades.

29. Se crearán cooperativas de segundo grado, cuyos socios son cooperativas de pri-mer grado, las que
tendrán personalidad jurídica y patrimonio propio y se formancon el objetivo de organizar actividades
complementarias afnes o que agreguenvalor a los productos y servicios de sus socios (de producción,
servicios y comer-cialización), o realizar compras y ventas conjuntas con vistas a lograr mayor eficiencia.

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