Saturday, May 19, 2012

The Government Guidelines for the Economy and the new Cuban Economic and Social Structure / Estado de Sats / State of Sats

The Government Guidelines for the Economy and the new Cuban Economic and
Social Structure / Estado de Sats / State of Sats
Estado de Sats / State of Sats, Translator: Unstated
By Antonio Rodiles

The government document regarding guidelines for economic and social
policy seeks to outline a new design for Cuban society. This new design
envisions an economy essentially separated into three distinct sectors:

1) Large Enterprises: This segment contemplates those sectors with the
highest profitability. Here we find tourism, the new Economic Zones (for
example, the Port of Mariel), telecommunications, transport, nickel
production, and chain stores. These include State Enterprises and Joint

1a) State Enterprises: It is important to note that within the large
state enterprises we find the Armed Forces (FAR) and the Ministry of the
Interior (MININT). Both institutions currently control many of the most
profitable business in Cuba. In recent years, unlike in many countries,
these institutions have behaved as corporations.

1b) Joint Ventures with Foreign Capital: Cuban capital is excluded from
this sector. One of the countries showing increased interest in
investing in Cuba for long-term profitability is Brazil. It's clear that
Brazil is betting on a future change in relations between Cuba and the
United States, and is looking to position itself for that moment, hence
the great interest it is showing in the Mariel Zone project.

2) Small and Medium-sized Enterprises (SMEs, or, in Spanish known by the
acronym PYMEs)

2a) Cooperatives (regional collectives). Sectors of light industry,
services, food production. Cuba manages this sector through usufruct – a
leasing arrangement – in which the State maintains ownership of the
enterprises, while allowing a certain independence to those who hold
them in usufruct. So far it is not clear under what tax structure they
will operate.

2b) Local Governments. These enterprises are tied to local governments
and have greater autonomy. Their existence depends on their profitability.

3) Micro-enterprises (referred to in Cuba as timbiriches). Small
manufacturing, small restaurants, rental homes and offices. Tax rates
for these businesses are extremely high, there are limitations on
contracting for labor, as well as other restrictions that will not allow
the natural growth of the sector.

The State will retain control over professional services, which includes
sending professionals to other nations. These professionals will
continue to receive only a tiny part of the salary paid to the Cuban
Government for their services.

There are two key points mentioned in the Government Guidelines document:

1. The economic policy of the new stage corresponds to the principle
that only socialism is capable of overcoming the difficulties and
preserving the conquests of the Revolution, and that in the updating of
the economic model planning will be supreme, not the market. [1] (The
document does not reference what exactly is understood by socialism
under the new economic-social design.)

2. The concentration of ownership will not be permitted. [1]

This is another area that raises many questions. Is it referring only to
the micro-enterprise sector? Or does it also refer to State monopolies
or enterprise groups?

One very striking aspect of the document is the lack of any reference to
the mechanisms of transparency in this new economic structure. There is
not a single sentence that explains to us how a Cuban citizen can verify
government spending, the amounts of national and foreign investment, or
the financial statements of companies and ministries, including the
Armed Forces and the Ministry of the Interior.

This roadmap seeks, undoubtedly, to approach in the medium and long term
the "market socialism" model in place in China and Vietnam, but with
marked limitations. The key differences are directed at private
enterprise and national and foreign investment. In the case of China,
the investment from Chinese in the diaspora was crucial, while in our
country the very mention of this factor is taboo. The proposed model is
visibly marked by the fear of losing control of the change process, as
well as a strong ideological counterweight, which continues to hold back
the transformations needed in the country.

In recent times, within the island, certain trends that promote "renewed
socialism" have gathered strength. Some of these take as a social
paradigm a system structured around Sector 2, above — small and medium
sized enterprises. A product of the failure of socialism in Eastern
Europe and of the profound crisis facing Cuba, the promoters of this
approach advocate less centralization and a flatter power structure.
They do not, however, renounce the collectivist vision as the essential
framework of Cuban society, that is, they will look for collectivization
on a micro-scale. This thinking continues to demonstrate a rejection of
the growth of private enterprise and capital for Cubans, as well as the
full development of individual freedoms. It is very important to mention
that these new visions do not point to Communism as "the end of
history," or at least do not make reference to it.

I would like to mention a figure who appeared in the Economist Magazine,
relating to the performance of private enterprises in China. At a
conference in November of 2010, Zheng Yumin, director of the Zhejiang
Provincial Administrative Bureau for Industry and Commerce, said there
were 43 million companies in China, of which 93% are privately owned,
employing 92% of the total workforce.[2] These statistics show the need
to allow small, medium, and also large private enterprises to play their
rightful roles in the economy of any nation.

A design like that proposed in the Cuban Government's Guidelines, is
clearly biased against the growth and development of the nation, in
social, economic and political aspects, because it establishes strong
constraints on individual initiative, a basic element of any
contemporary society. While it may be a step forward in pursuit of
decentralization and the possibility of new forms of ownership, it is
important that the changes undertaken reflect a depth consistent with a
long-term vision, and do not end up serving as a straitjacket on society.

In the 21st century it is essential to analyze the development of
nations as a process that refers not only to the economic sector, but
that also encompasses various social and political aspects from a more
holistic vision. Societies structured as multi-level systems in each
one of their building blocks, or basic elements, should have the ability
to establish a spontaneous order. This spontaneous association
guarantees that properties such as "emergence" — also referred to as
"self-organization," a central tenet of Marxism — can function; that is,
the system generates new forms that are not obtained as a sum of its
constituent parts.

In 1999, James D. Wolfensohn presented a new comprehensive framework for
analyzing development in terms of three factors[3]:

1) Development of Social Institutions (system of government, judicial
system, financial institutions and social programs).

2) Human Conditions: education and health.

3) Physical Infrastructure: water, energy, transportation and
environmental protection.

In the same vein, a recent article by Francis Fukuyama and Brian Levy[4]
seeks to establish the essential elements, the building blocks, which
make up a development strategy, assessing this as the multilevel system
it is. The elements they establish are:

1) Economic growth.

2) Development of civil society.

3) The Constitution of the State.

4) Democratic political institutions, including both the rule of law and
a democratic electoral system.

Let us analyze in more detail four elements that undoubtedly create the
necessary basis for a nation to demonstrate a strong social dynamic:

1) Social development implies economic growth, since the latter provides
the possibility of better living conditions, both individually and as a
nation. Economic growth also provides the potential, for both
individuals and the State, to have at their disposal the resources to
develop their projects. In the specific case of the State, we are
talking particularly of those projects that, in turn, allow for
long-term growth: technology and infrastructure, among others. Economic
growth, without a doubt, goes hand in hand with the exercise of economic
freedom, which is a necessary if not sufficient condition, for the
establishment of a prosperous society.

2) Civil society is the engine that generates not only new social
structures, but also promotes the renewal of state institutions,
managing them so that they can adjust to meet growing social demands.
The feedback between civil society and the State must be a factor that
works in favor of the development of nations. A vigorous civil society
only occurs when individuals have the ability to interact within a
framework of full respect for individual rights, governed by a rule of
law. Every State should guarantee the exercise of economic and political
freedoms, and should never function as a straitjacket on society.
Contemporary civil society should be seen as a framework of networks
with the highest connectivity, formed from the individual as an entity,
to more complex social structures, and framed not only in a national
context, but a transnational one as well.

3) An effective state must have as its principal objective the
establishment of law and order through a state of law. This will ensure
the appropriate framework to support social dynamics, in which there is
majority rule with full respect for the minority. Only then is it
possible that individuals can enjoy the benefits of belonging to a
nation. The constitution of the State is, in itself, a multi-dimensional
process[4], beginning with the ability to concentrate the coercive power
of a territory, and passing through the administrative ability to offer
efficient services, as well as to control corruption. The control of law
and order on the part of the State is a necessary condition for a
country to function as an entity. At present the vision of the Nation
State has begun to fade with the appearance of supranational unions. It
is very important to note that, from this perspective, an effective
State is not a large State and is the counterpart of the totalitarian State.

4) The establishment of democratic political institutions plays an
essential role in any strategy for development. The creation of the
mechanisms of transparency, the establishment of laws that prevent
unfair competition and monopolies, are undoubtedly basic elements to
create a dynamic society. Any system that is based on the establishment
of monopolies – be they state or private groups, protected or not by
government institutions – will condemn the country to failure over the
long term. Our economy is a clear example of how a State monopoly ends
up smothering individual initiative and achieves high levels of
inefficiency and ineffectiveness. Other cases, such as Mexico,
demonstrate the results of an economy based on a combination of State
monopoly associated with interest groups. This unholy alliance ends up
creating, in that Aztec county, what was once called "a perfect
dictatorship." The institutions are completely at the service of
specific groups and the country is very far from functioning as a state
of laws. The rule of law remains weak, responding to the interests of
the groups in power. We need to understand the growth in organized crime
— drug cartels — as a direct result of the lack of democratic credibility.

To begin the process of transformation in our country, we must first
consider all the elements that will play a part. Taking into account the
previous analysis, it is clear that a development strategy implies the
most comprehensive changes at the deepest levels. All transformations
need to be designed to promote more effective mechanisms that stimulate
the social dynamic, looking for direct support in our own experience and
in that of other nations.

There are three points that can form a base for these transformations.
This base guarantees a process of development over the medium and long
term that would allow us to avoid unnecessary and painful situations.
These three elements are:

1) Establish a legal framework that sets out clearly and transparently,
the rights regarding private property as well as the ability of
citizens, either individually or in association with others, to make use
of their possessions for private, commercial and social ends. The
establishment of private enterprise across a wide range of economic
sectors is essential.

2) Undertake a modernization of the State, which has as its principal
objective the creation of decentralized and democratic structures.
Consider within this process, among other things, tax reform and the
corresponding mechanisms of accountability and transparency, seeking the
best balance between the performance of the market and the social
responsibilities assumed by the State.

3) Introduce into our country the process of modernization and
globalization that holds sway in the contemporary world. An introduction
that leads to the free flow of information, freedom of movement for
people as well as openness to investments, particularly to encourage
Cubans residing both within and outside the island to be participants in
the process of renewal.

In conclusion I would like to make one final comment. Starting from the
vision that society can be represented as the union of a framework of
networks, occupied at different levels, and responding to different
structures and dynamics, it is then possible to understand why a
pre-established roadmap, as a proposal for the future, is quite inadequate.

The contemporary world shows us that societies can no longer be seen
only as national realities, but that we must understand them as
transnational entities, which adds still more complexity to these
systems. The creation of new levels in this structure will depend on the
capacity for self-generation starting from a spontaneous order and its
interaction with the environment. The result of this dynamic is not
predicable, so to plan its emergence and subsequent evolution is, at the
very least, Utopian. Our aspiration must be to establish strategies that
facilitate and stimulate this spontaneous order as a generating element
and driving force of society, and to ensure the existence of an open
society. It is on this point where I differ completely from planned and
collectivist models, because these undoubtedly end up smothering the
self-generation capacity of these systems.

1) Government of Cuba: Lineamientos de la política económica y social.
(Guidelines for Economic and Social Policy)
2) The Economist Magazine: Bamboo Capitalism. Mar 10th 2011.
3) Bar-Yam, Yaneer. Making Things Work. Knowledge Press.
4) Fukuyama, F. Levy, B. "Development Strategies"

27 March 2011

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