Economic Reform: The Cuban Self-Employed Private Sector
Currently, Cuba has 11.3 million inhabitants, of which more than 600,000 are classified as, "trabajadores por cuenta propia (TCP)," meaning that they work for the private sector. A considerable amount of these individuals work as “contratados,” or employees in a private business, which function as de facto companies (even though the euphemism of “self-employed TCP” is used to identify them.)
Self-employment is incorporated into the guidelines of the Communist Party of Cuba and is part of the Cuban economic and social strategy. Its beginnings date back to the 1990s, during the well-known Special Period. The economic model that had been built until then was abandoned due to the need to overcome the alarming degradation of the national economy. At that time, private enterprise was considered a "necessary evil" to save the crumbling economy. Despite having little popularity and government support, the so-called “private sector” in contrast to the “state sector” managed to stimulate the Cuban economy and significantly increase national employment
In the year 2000, the Cuban economic model began to shift again, as the slight economic and financial improvement prompted the government to return to the centralized and nationalized economic model. Access to self-employment licenses was reduced and as a result, the private sector became somewhat paralyzed. The Cuban government’s unstable and irregular treatment of self-employment inspired a lack of stability and respect for Cuban entrepreneurs.
As Fidel Castro released direct command of the Cuban government and declared his brother, Raúl Castro, President of Cuba, this marked another change to the landscape of self-employment in Cuba. Raúl's control of government brought with it a reformist and pragmatic spirit. Among other measures, it reordered non-state management called "cuentapropista" or self-employment and was included as part of the political-economic guidelines established on October 7, 2010. This sector of the economy flourished during the reestablishment of relations between Cuba and the United States, and the explosion of American tourism with its consequent demand for products and services.
A significant amount of the self-employed economic pursuits in Cuba were related to the tourism sector, specifically in areas such as accommodations (renting of locals’ homes), food processing and sale, and passenger transport licenses.
With the Trump administration enforcing the economic and financial blockade on Cuba and travel restrictions from the United States to Cuba, plus the COVID-19 pandemic, the Cuban economy has been suffering the second-largest recession to its economy since the Special Period of the 1990s. However, one difference between the recession of the Special Period and now is tourism can not be the country’s saving grace (as tourism greatly helped Cuba survive the economic challenges of the 1990s.) Therefore, the Cuban government is turning internally, with a protectionist mentality, and focusing on freeing up the productive forces as much as possible by offering employment flexibility. In this, the reordering of self-employment plays a central role.
The self-employed TCP sector of the Cuban economy has been the hardest hit by the COVID-19 pandemic. They have modified their businesses to varying degrees in order to survive. Despite this, 250,000 self-employed workers have requested a temporary suspension of their licenses. These self-employed workers with suspended licenses can find salvation in the new measures for TCPs by expanding their scope of economic activity to put themselves in other productive economic sectors.
The different economic actors in the Cuban economy.
MEASURES OF SELF-EMPLOYMENT REFORM IN CUBA
It is important to understand that the recent self-employment reforms in Cuba are not the exclusive product of the economic crisis caused by the COVID-19 pandemic. Many of the modifications to self-employment are the product of popular debates and requests that have been analyzed over the last 10 years. This process of economic reform in the private sector promises to be the first phase of a broader process that will lead to the establishment of private micro, small, and medium enterprises in Cuba and will allow self-employment to continue to sustainably develop to withstand over time.
THE PRIMARY SELF-EMPLOYMENT REFORM MEASURES:
None of the activities currently performed by TCPs will be eliminated.
The previous list which included 127 activities that Cubans could legally exercise will be expanded to more than 2,000 activities in which self-employment is allowed.
The TCPs that already have licenses will carry out a re-registration process.
Procedures will be reduced when applying for a permit to exercise self-employment.
The licenses will be issued based on the presentation of projects by the interested parties where the utility and profitability of a business are demonstrated.
Affiliation to the special Social Security regime will be maintained, as appropriate.
There will be a tax reduction that recognizes 100% of self-employed-related expenses.
The obligation to present an Affidavit will be applied to all self-employed workers, regardless of their applicable tax regime, which will allow transparency of income, as well as the level of expenditure in the development of the work.
A proportion of the taxes of the self-employed will contribute to the municipal budgets that can be self-managed by the locality and invested in priorities decided by the community.
The quota system* will be abandoned. A percentage of income will begin to be paid, on a quarterly basis, with the novelty that it is calculated by discounting the exempt minimum so that workers can support their living expenses.
The Quota Regime belonged to the Simplified Regime and consists in that some licenses paid a minimal fixed monthly fee, regardless of the real income that the business had. These self-employed individuals did not need to keep accounting sheets because their activities were to be small-scale and it was enough for them to pay the fixed monthly fee. This was a mistake and is being overcome in this TCP reform.
The application of the Accounting Standard will be generalized to all self-employed workers of the general regime and investment expenses are recognized (something highly requested by the TCPs).
Legal personality will be granted to private parties for the import and export of products and services (provided that they meet a series of requirements).
The possession of dollars by TCPs will be allowed and encouraged for international trade and to stock up on the domestic market in the MLC stores that were designed for them.
Leased market space for a self-employed worker. Photo from 14ymedio.
CONTROVERSY OVER THE SELF-EMPLOYMENT REFORM
One of the most controversial aspects of the self-employment reform has been the list of prohibited activities. The Minister of Labor and Social Security said:
“The preparation of the list of prohibited activities was not easy, but we did it from a collective thought and a connection with the academy. For this, we use the National Classifier of Activities, prepared by the National Office of Statistics and Information, so that with it we do not miss any. From there, we saw which ones should not be exercised by the TCPs, and of the more than 2,100 activities that the Classifier has, we only prohibited 124.”
This list of "just 124 activities" includes several professions including freelance journalists, lawyers, accountants, architects, some engineers, and some artistic activities. Some of the prohibitions represent breaches of constitutional rights and human rights such as freedom of the press and freedom of artistic creation. In relation to this, the Cuban economist, Pedro Monreal, said:
“Although there tends to be more talk about the 'negative list' or restricted licenses, the most attention should be given to the positive list, particularly in the case of industrial activities. This is where, at least potentially, a possible radical modification of the insertion of national private activity in the economic model that is trying to be built in Cuba lies. (…) The expansion of TCP activities would not in itself be a very relevant measure because its importance would depend on whether it was a step in the formation of private SMEs that would allow them to take care of the regeneration of depressed segments of the national industry and to contribute to give greater dynamism to other segments that, although they grow, are not able to satisfy the demand."
Cuba is still prohibiting self-employment of the media/press sector. Photo by Otmaro Rodriguez, OnCubaNews.
SELF-EMPLOYMENT CHALLENGES IN CUBA
The elimination of the distortions caused by the dual currency monetary system and exchange rate eliminated the advantage that private businesses had over state companies. Although many state-owned companies are expected to go bankrupt and their workforce to become part of new companies in the private sector, this will not mean that the national project is to prioritize the growth of Cuban private companies. In January 2021, more than 80,000 people sought employment and more than 40,000 were hired in the state sector, in many cases motivated by wage increases in this sector.
The environment is increasingly competitive for private companies who do not have a stable wholesale market to supply them with inputs and who, in order to earn foreign exchange, must enter international trade as novices without access to credit and other benefits.
On the part of the Cuban population, there remains the challenge of assuming the culture of entrepreneurship, business management, accounting, and tax culture that includes the declaration and payment of taxes as well as the legalization of illegal jobs in the black markets.
The Cuban government intends to strengthen the mechanisms of inspection and verification of tax obligations. The Tax and Finance Administration is preparing for the assessment and approval of all new business projects, and local governments must transparently manage the funds and profits they obtain through contributions from the private sector in their community. None of this will help if they are not able to supply the private sector with raw materials and if they don't keep moving forward with the legalization of SMEs.
It can be said with some certainty that the economic reforms taking place in Cuba today are not merely symptomatic, as they differ from previous openings to private entrepreneurship in the fact that the government has understood it cannot develop its economy without the private sector and that they are not "a necessary evil" but a very useful good.
During the presentation of the new measures on national television, the Economy Minister said, “We start from one base: the economy is one. We don't have a state and a non-state one. We are taking steps so that the Economy Plan recognizes all economic actors. There is no ‘they’ and no ‘us.’ We are all one and in that sense, everything we do to improve our own-account work is on the positive path of incorporating new potentialities to the solution of the problems of the economy.”
Sources
“Decreto Oficial Trabajo por Cuenta propia.” Gaceta Oficial de la República de Cuba, Ministerio de Justicia. Accessed February 22, 2021.
“Actividades donde no se permite el ejercicio del trabajo por cuenta propia.” Ministerio de Trabajo y Seguridad Social. Accessed February 22, 2021.
“Clasificador Nacional de Actividades Económicas (CNAE) Enero 2021.”Oficina Nacional de Estadística e Információn República de Cuba. Accessed February 22, 2021.
“Lineamientos Económicos 2017.” Gaceta Oficial de la República de Cuba, Ministerio de Justicia. Accessed February 22, 2021.
"Hacia un “cuentapropismo” post- servicio en Cuba. ¿Qué debería seguir?" Blog: El estado como tal. Accessed February 22, 2021.
“Una mirada al cuentapropismo en Cuba.” CUBAHORA. Accessed February 22, 2021.