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The Cuban government is legalizing small- and medium-sized private businesses. Here the old part of capital Havana. (Photo: Radmilla Suleymanova/UN News Service)
Monday, July 11, 2016
Perspectives

Cuba: A Boost for Entrepreneurs?


Will Cuba’s new policy unleash entrepreneurs?

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

The Cuban government announced in late May that it would legalize small- and medium-sized private businesses, a move that could significantly expand private enterprise in the communist country, according to the Associated Press. Though a non-state sector of the economy has informally existed for years, Cuban business owners and economic experts are hoping that the move to officially recognize private firms will allow them to import supplies and export products to other countries for the first time. Analysts also anticipate that the changes are likely to extend some legal rights to businesses alongside individuals, as well as allow private companies to establish bank accounts, conduct business with government-owned firms and participate in international trade. Will Cuban businesses benefit as much as they hope from the change? How will Cuba’s relationship with the United States evolve in light of the change? Will Cuba successfully integrate the private sector into its plans to maintain a centrally-planned economy?

Devry Boughner Vorwerk, member of the Advisor board, senior policy advisor at Akin Gump and chair of the U.S. Agriculture Coalition for Cuba: The Cuban government is actively working to reconcile its social model with economic realities. Cuba’s economy needs to grow now. As such, the country is enacting its own internal reforms to keep pace with its growth plan, and to prepare itself for imminent liberalization through the removal of sanctions. The government seeks to unleash the economic potential of its people by allowing citizens to push the limits on their creativity and entrepreneurial spirit. Legalization of small- and medium-sized businesses is an important first step in achieving growth. These businesses can now operate in the open and under the ‘Cuban sunshine.’ The government will need to backstop legal recognition with transparent regulation, consistent implementation and institutional capacity to support the emerging private sector. Business owners will have lots of questions for the government, and expectations of its citizens are building, which is a good thing. Even with internal reforms and successful government administration of those reforms, Cuban entrepreneurs require seed capital to kick start their businesses, which now places the onus for success of this policy back in the hands of U.S. Congress. Removal of trade sanctions will allow for free flow of private capital to Cuba, which can expedite the growth of private enterprise in the country. At this moment, we cannot predict how it will all play out. We should expect some fits and starts, but betting on the innovation and ingenuity of the Cuban people is a good place to begin.

Otto Reich, president of Otto Reich Associates and former assistant secretary of state for Western Hemisphere Affairs under President George W. Bush: The giddy reaction to the announcement that the Cuban government will allow ‘private business’ in Cuba illustrates one flaw in the Obama administration’s outreach to the communist regime: it is not based on fact but rather on wishful thinking. Such a ‘private sector’ has never existed in any real fashion under the Revolution, contrary to the Obama administration’s declarations. What do exist in Cuba are a limited number of state-authorized, menial occupations such as ’doll repairer,’ ‘dandy’ and ‘dog groomer,’ that pose no threat to the Castro family’s ownership of the means of production. Even the highly touted home-based restaurants and rooms to let in private homes are subject to arbitrary closure or destructive taxation with no right of appeal. Any announcement from the propaganda machinery of the Communist Party of Cuba cannot be taken at face value. According to the Cuban Constitution, all property is ‘the Socialist State property of all the people,’ which we know from the experience of the 20th century that ‘state property of all the people’ belongs to those who control the state, not to the people. The real story behind this private sector ‘expansion’ is exposed in the document issued after the Communist Party Congress this past April. The document says that the private sector is a ‘project that may be considered… in a future society to which we aspire.’ In typical communist double-speak, the document states that the text itself is ‘generalizing, with the purpose of conceptualizing future aspirations, once the [communist] model has been updated.’ George Orwell must be smiling in his grave. And when does the Communist Party expect that ‘future’ to happen? Not any time soon but, as the document itself states, in the year 2030. That is not a typo. Wishful-thinking is not the basis for a foreign policy. Yet it is the underlying principle of the Obama administration’s Cuba initiative—and all others.

Richard E. Feinberg, professor at the School of Global Policy and Strategy at the University of California, San Diego and senior non-resident fellow at the Brookings Institution: Like its predecessor document, the 2011 reform guidelines, the Cuban Communist Party’s 2016 draft vision plans—draft because the PCC is submitting the documents to public consultations—are replete with internal contradictions. Evidently, the drafters sought to balance the views of conservatives and reformers by asserting the eternity of central planning while recognizing the virtues of market reforms. Nevertheless, the new release signals significant progress, even as the documents, once approved, must still be translated into new laws and regulations. In 2011, the Communist Party spoke tepidly of ‘the non-state sector,’ whereas today it refers overtly and approvingly to private business. Private firms will be allowed the standing of ‘legal persons,’ not just of ‘natural persons’ as has been the case. With that new juridical label comes a series of rights and protections, making it easier to access bank credit, transact with state-owned firms and, possibly, engage in international commerce. Cuban-Americans who provide financing to their relatives on the island may feel more comfortable—U.S. regulations allow for gifts and loans, but not yet equity injections. Moreover, by offering this new legal standing to private firms, the PCC has crossed an ideological Rubicon, reminiscent of when the Chinese Communist Party added the private sector and middle classes to workers and peasants as legitimate constituents. Nevertheless, the vision plans reassert the PCC’s distaste for large-scale private capital accumulation and do not remove existing barriers to firm expansion, such as ascending taxes on business profits.

Julissa Reynoso, former deputy U.S. assistant secretary of state and partner at Chadbourne & Parke, and Amanda Sewell, associate at Chadbourne & Parke: The Cuban government’s recent announcement related to small and medium-sized private businesses is an important policy decision with long-term consequences for the bilateral relationship. Many Cubans already run their own businesses, but face a myriad of challenges, because they are not legally recognized. Once in place, the reforms will allow small- and medium-sized private business owners to legally import supplies and function without fear of retribution for their illegal status. The shift will create an official non-state business sector. This development is an encouraging sign for the United States. The Obama administration has undertaken a foreign policy shift in an effort to improve relations between our two countries and to create greater opportunity for Cubans. The administration issued specific policy guidance and changes to the regulations that encourage and facilitate greater economic and commercial ties with the Cuban people. The economic initiatives come in the form of remittances, trade and investment. The Cuban government’s willingness to carry out this and other economic reforms, promoting independent and private economic activity, validates Obama’s strategy of loosening the embargo and will inevitably strengthen long-term ties between the United States and the Cuban people.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

 

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