Private and Cooperative Enterprise in Cuba's Economic Future

the institutional structure of the cuban economy has undergone immense changes over the decades since the accession of the government of Fidel Castro in 1959. By 1970, Castro's government had expropriated virtually all private sector enterprises, and legal employment in the sector fell to about 30,000. With the 1989–93 economic meltdown sparked by the termination of Soviet subsidization, a more liberalized policy environment toward microenterprise permitted it to expand for a while. But restricted licensing, onerous taxation, and strict regulation after 1995 contained and shrank the sector. Policy revisions after 2010 under the presidency of Raúl Castro then led to a rapid expansion of employment in micro and small enterprise. In 2013 a pilot program for nonagricultural cooperatives was established and then broadened, leading to the emergence of a new cooperative sector for nonagricultural activities.

By 2017, the new microenterprise and cooperative sectors were making valuable contributions to the Cuban economy and to people's livelihoods. Some policy hesitations, however, continued to limit the evolution of the sectors. Moreover, discrimination against these sectors continued and intensified, with special treatment given in favor of state enterprises and joint ventures of foreign with state enterprises in the Mariel Export Processing Zone.

In the not-too-distant future, Cuba will have to decide what type of institutional structure it will develop. The alternatives are (i) the status quo with a large state sector; (ii) a heavy reliance on large-scale, foreign-owned enterprises (the "Walmartization" option); (iii) a structure that emphasizes cooperative enterprise; (iv) one that emphasizes indigenous Cuban-owned enterprises; or (v) a mixed structure with strong presence for all four components. The objective of this essay is to examine the emerging private and cooperative sectors and the policy environment in which they operate as of early 2017 and to outline and assess Cuba's possible future institutional structures.

THE EVOLUTION OF THE INSTITUTIONAL STRUCTURE OF THE CUBAN ECONOMY

Since its founding, Cuba has relied upon the market mechanism and private ownership as well as public planning and ownership at various levels of government and for various sectors of the economy. Private sector entrepreneurs, public sector managers, and various benevolent associations in the cooperative sector all contributed to the development of the country. Cuba also evolved with a mix of large, medium, small, and micro enterprises throughout the economy. Large sugar mills, electrical generating plants, and cigar manufacturers, for example, coexisted with numerous small registered and unregistered (or "informal") enterprises. For example, in footwear production in 1949, there were 716 registered shoe manufacturers together with another 900 small unregistered shoemakers who avoided taxes and regulations and operated mainly out of their own homes (International Bank for Reconstruction and Development 1950, 913). This situation existed in many areas of services and manufacturing, though detailed information is often lacking.

Following the nationalizations of middle- and large-sized enterprises from 1961 to 1963, the "Revolutionary Offensive" of 1968 expropriated virtually all the small enterprises remaining in the private sector, right down to the shoeshine boys. But in 1978, the government partially reversed its restrictive policy and permitted 48 categories of self-employment in the areas of services and small handmade manufactures and goods sold in craft markets (Pérez-Lopez 1995). The number of officially registered self-employed was placed at 25,200 in 1989 (112).

In the midst of the economic meltdown from 1989 to 1993, the economy shrank by around 35 percent to 37 percent while average real (inflation-adjusted) incomes declined perhaps by over 85 percent, according to estimations of Vidal Alejandro (2009). Many citizens survived by making their own income-generating employment in the unofficial economy. In view of the extremity of the crisis, the government of Fidel Castro then legalized a range of these self-employment microenterprise activities, and many registered and became legal. Figure 1 illustrates the impressive expansion of nonagricultural self-employment as a proportion of total employment from 1992 to 1995.

Figure 1.

Nonagricultural Self-Employment as a Percentage of Total Employment, 1970–2015

Source: ONE...