Nonstate Enterprises in Cuba

Positions on the Adequacy of Nonstate Enterprises in Cuban Socialism

While there are undoubtedly different positions among the members of the Cuban government regarding the adequacy of nonstate enterprises in the country’s socialist construction project, there seems to be consensus that they are an alternative that should be experimented with. The content of the “Lineamientos de la política económica y social del Partido y la Revolución” (Guidelines for the Economic and Social Policy of the Party and the Revolution) ⁸ and the statements of public officials suggest that the shared vision of Cuban policy makers is that there will be room for nonstate enterprises in Cuba’s new economic model. These enterprises will take on some activities now performed by state enterprises so that the latter can concentrate on “fundamental” activities. It is recognized that state management is not the most appropriate organizational form for nonstrategic small and perhaps even medium-sized enterprises. ⁹

The Guidelines state that mixed enterprises, self-employment, cooperatives, leasing, and other nonstate enterprises should be part of a multiple-actor or mixed economic system with the “socialist state enterprise” as “the main [enterprise] form in the national economy.” Without saying exactly what they are, they say that nonstate businesses that “contribute to improving efficiency” are consistent with the Cuban socialist project (PCC, 2011: Lineamiento No. 2).

Unlike the opening to nonstate enterprises in the 1990s, the present one is guided by official statements that such businesses are not transitory but permanent because, far from going against Cuban socialism, they contribute to “perfecting” it (Martínez, 2010). However, it is unclear to what extent nonstate enterprises are still seen by Cuba’s policy makers as a necessary evil—the best way to overcome the shortcomings of state enterprises—and to what extent as necessary complements to the latter that can allow more effective socialization of some economic activities.

The kinds of social relations established in the new nonstate enterprises that had been allowed until recently (private enterprises and leases of state property by individuals, both operating under market relations with basically no social coordination, rather than forms of self-management in coordination with local communities), along with statements by some public officials and a review of articles and letters published in Granma, demonstrate, in my opinion, confusion among public policy makers, academics, and the Cuban population at large about the organization of work in a society committed to a socialist project. The contradiction between concepts derived from Soviet textbooks and liberal economic theories makes it difficult to identify any of the principles that should guide the current redesign of the Cuban economic system and the role of the nonstate sector.

To the extent that the idea that the state enterprise (administered by representatives of the state and entirely subject to it) is the most advanced form of enterprise prevails, ¹⁰ nonstate enterprises will be considered only as a necessary evil that must be maintained on the margins of the economic system and should be abandoned when new formulas for effective management of small and medium-sized enterprises are developed by state functionaries. According to this position, a firm is more or less socialist to the extent to which it is administered and controlled directly by the state through its officials or representatives. Any change that leads to less state intervention in enterprise governance therefore means a setback on the road to socialism.

At the other end of the range of positions on the adequacy of nonstate enterprises in socialist construction is the argument that private business managed by individuals who hire permanent wage labor (which Marxian theory would call “capitalist”) should prevail because it can achieve higher levels of economic efficiency. The management models that characterize democratic enterprises such as cooperatives are dismissed as utopian and any management model of state property as inevitably inefficient in comparison with those that are privately owned and operated. In this approach, as in economic liberalism, it is considered essential that management models and regulatory frameworks not hinder managers’ profit-maximizing behavior, because it is believed that their individual interests are for the most part irreconcilable with those of a workers’ collective and even more with those of a social nature that may be called for by state officials and other representatives of society. In other words, according to this position, nonstate enterprises and especially private ones that can flexibly hire workers are essential for the functioning of any economy. What is important, it is suggested, is that “the cat catches mice, not how it hunts them” and that “you have to let some people get rich because then there will be more to be distributed.” ¹¹

Another position, among the many nuances that exist in between these two positions, is that nonstate enterprises do not have to be private or capitalist, there being other options beyond private and state business models. ¹² It is argued that in fact the management model in Cuban state enterprises and the nation’s planning system in general do not fully meet the principles that the classical Marxist thinkers laid down, whereby a socialist society is characterized by the free association of workers guided by a common plan (Marx, 1872: 308). For advocates of this position, any form of enterprise, whether the legal ownership of its means of production remains with the state or not, ¹³ can contribute to the advance of socialism to the extent that its management is democratic and responsive to social interests—to the needs and expectations of the local community in which it is located and the nation at large. In some cases, it is more effective to “socialize” economic activities through nonstate enterprises that are democratically managed and guided by social interests.

In the Guidelines it is not clear whether priority will be given to workers organized into cooperatives or whether private businesses will be considered equally valuable. The measures that had been taken until recently and the official media reactions seem to indicate that the hiring of wage workers (private capitalist businesses) is proving less difficult to accept than the creation of cooperatives. However, Vice President Marino Murillo, head of the commission created to implement the Guidelines, said recently that cooperatives will be given preference and that—together with the perfecting of state enterprises—the expansion of cooperatives will be among the most important elements of the new economic model (Murillo, 2012). Murillo and Finance Minister Pedraza have stated that cooperatives will have preferential treatment over independent workers because they are “more socialized” and the intention is to prevent the concentration of wealth, given that wealth is obtained mainly through the hiring of wage labor. The emphasis, however, has been on wealth distribution rather than on the nature of the social relations that are established among subjects who are building—or not building—the postcapitalist society, an approach that has so far marked most socialist experiences.

With regard to exchange relations, it also appears as if the fact that state enterprises will continue to be dominant eliminates the risk of nonstate enterprises’ interfering with social planning, an essential element of socialism. So far, independent workers and cooperatives (except those whose activities relate to basic needs or have a social impact) are expected to set their prices according to the “laws of supply and demand,” ignoring the fact that Cuba’s domestic market is far from a level playing field, being plagued with an ineffective monetary system, segmentation, undersupply, internal and external barriers to imports, and unequal purchasing power. It has yet to be spelled out how nonstate enterprises will relate to or to what extent they will be part of the “socialist planning system [that] will remain the principal means of directing the national economy” (PCC, 2011: Lineamiento No. 1).

As part of the trend toward decentralization that characterizes the current changes, municipal and provincial governments are expected to be in control of economic activities in their territories. Local governments are going to have a fund for development projects that they can decide how to use and will be able to raise taxes from local businesses. Tentatively, these new capacities will allow advances in the socialization of the circuits of production, distribution, and consumption that occur at these local levels through horizontal coordination among economic actors (producers, consumers, suppliers) and thus in bringing their exchange relations under social control. However, it is still unclear what mechanisms or coordination procedures will be available to local governments to control nonstate enterprises and guide them so that they really respond to social interests. Also to be defined is how residents can direct those decisions and supervise the use of local government monies. The institutional framework that would allow enterprises to protect themselves from unfair treatment by local governments and other state institutions is still lacking.

In the next two sections I argue that for nonstate enterprises to best advance Cuban socialism and the emancipatory goals of Cuban society, they ought to be democratically managed and be oriented toward the satisfaction of communities’ needs and expectations.

Democratic Management

Despite the intention to promote cooperatives and workers’ participation expressed by the Revolution’s leadership, ¹⁴ the long absence of policies favoring self-managed enterprises over private ones in Cuba—which are only now being sketched out—suggests that policy makers have ignored one of the most important legacies of Marxist thought: that it is the relationships established among individuals during production processes (the “social relations of production”) that—ultimately, without undermining human agency—generate their behaviors and values. In fact, Cuban policy makers have made clear that they do not recognize that the hiring of permanent wage labor, whether by independent workers, private farmers, or even cooperatives, establishes wage-labor relations and therefore is a form of subordination and, in general, of exploitation, even if wages are higher than in the state sector and even if the employer works side by side with the employee. ¹⁵ Until the substantive difference between the wage-labor relation (on which capitalist societies are based) and the associated-labor relation (which should characterize socialist societies) is acknowledged, the importance of democratic management models or self-management as institutional means to overcome the obstacles that wage labor poses to workers’ overall human development and thus their contribution to society will not be appreciated.

One argument used to dismiss the importance of cooperatives and other forms of self-management is that workers’ participation in decision making is chaotic, time-consuming, inefficient, and unsustainable over time. However, doubts about the feasibility of democratic management models can be addressed by studying the experiences of the cooperatives that make up the Mondragón group ¹⁶ and the many others of different sizes and sectors that thrive in the world today (Cruz and Piñeiro, 2012: 25–27, 42–44). Despite their defects and eventual demise, the forms of self-management that occurred in Yugoslavia (Devine, 1988: 95–96; Vanek, 1977: 208) and in Republican Spain (Dolgoff, Bookchin, and Paul Avrich Collection, 1974) show that it is possible to manage even large enterprises democratically across a nation and even a local economy. The advantages of participatory management models have been recognized not only by socialist theorists (for a review, see Piñeiro, 2012b: 71–190) but also by managers of capitalist enterprises interested in establishing more effective ways to encourage workers to increase productivity, quality, and innovation. ¹⁷ In capitalist enterprises, however, workers do not really control decision making, and generally the right to participate is associated with the ownership of shares in the company.

Those committed to building socialism do not view democratic management as merely a tool for motivating employees to contribute more effort and knowledge. Participation is seen as an essential way for them to develop as “new” men and women in a more just society, with technical and managerial skills, a sense of belonging and commitment to the entire production process, self-confidence, creativity, and solidarity. When workers can participate in management decisions and exert collective control over their enterprises, they enjoy work under different social relations—those of associated labor, in which everyone has the same rights and responsibilities. Democratic management also enables workers to exert greater control over decisions that have an impact on their lives and to engage the interests of others and therefore to find themselves in objective and subjective conditions more conducive to solidary behavior.

To the extent that Cuban socioeconomic thought frees itself from the dogmas of both state socialism and economic liberalism and the humanist essence of socialism is reasserted—as is occurring in other Latin American countries—the main goal of socialism will not be reduced to satisfying increasing material needs but will include meeting the spiritual needs that every human being also has. Only then will attention be given to the nature of the relationships that people establish among themselves and not just on increasing production and redistributing wealth. This understanding will have as a corollary the preference for democratic forms of management in enterprises so that the injustice inherent in wage-labor relations can be overcome. ¹⁸

Thus, to identify whether a management model is appropriate or compatible with a socialist society, it is crucial to take into account the extent to which important decisions are made democratically by the workers themselves, directly at general meetings or indirectly by elected and recallable representatives. What matters is who does the managing. Legal ownership can be separated from control over management, and profit distribution is just one of many decisions made by the managers. In other words, for an enterprise to be really useful for building socialism (with regard to its internal organization; in the next section I discuss another important requirement related to its external relations) the important thing is that ultimate authority rest with the workers’ collective: that it is the workers who make the most important decisions, establish the rules governing the enterprise, elect their executives and management, and control the performance of their enterprise and the way the wealth created is distributed. As we shall see, the socialization of an enterprise requires that it also respond to social interests, so in cases where the economic activity has a significant social impact it is best for the workers’ collective to share control with representatives of those interests.

To promote socialist relations of production—what Marx called the free association of workers united by a plan—it is not necessary or advisable to prohibit the hiring of wage labor, but it is essential to establish policies that seek to democratize the management of all enterprises. In the nonstate sector, this means prioritizing the creation of self-managed enterprises over private ones by granting them preferential access to financing, supplies, technical assistance, and government contracts, among other measures, as well as educating wage workers on their rights, raising their self-esteem, and demanding transparency from managers.

The aim should be to build an enterprise system with multiple forms of more and less democratic management without losing sight of the objective of generalizing as much as possible the adoption of democratic models. We should create the conditions that make people who have the advantage of having financial resources and entrepreneurial initiatives more inclined to create cooperatives or other forms of self-management and make the less fortunate inclined to join them rather than become subordinated wage workers. The self-employed and family businesses can also be socialized by promoting their association in cooperatives or other, more flexible forms of cooperation. Creating institutional spaces for all enterprises to work more closely with local governments and organizations is also indispensable for their socialization. The idea is of course not to impose or force the creation of democratic enterprises and their linking to local governments but to demonstrate that these are more effective ways of organizing work in order to satisfy the material and spiritual needs of members of the enterprise and the communities that surround them.

Responsiveness to Social Interests

Nonstate enterprises—as well as state ones—are useful or adequate to a project of socialist construction, a project that seeks to meet the material and spiritual needs of individuals, to the extent that they contribute to meeting those needs. It is not enough for them to be profitable and comply with/fulfill their tax obligations; their activities should be oriented toward the satisfaction of real consumer needs, not just demands fabricated through marketing strategies. Not least important, the effects of enterprise operation on third parties such as the communities where they are located and the social groups impacted by their activities should be as positive as possible and at least not damaging. To ensure and facilitate these behaviors, enterprises must be under social control (what Marxian theory calls “social property). This can take various institutional forms depending on the characteristics of the enterprises and those of the communities impacted and does not mean ignoring the autonomy and other conditions required by any economic activity.

Logically, it is not necessary or advisable for society to attempt to control activities that do not have a significant social impact. In these cases, the discipline of market demand and general rules that can be established by a regulatory framework are largely sufficient. The need for social control is clear, however, for activities related to basic consumption needs or strategic requirements. Here it is not enough to establish a regulatory framework that prohibits or penalizes unwanted behavior; it is also necessary to encourage positive behavior, responsible and responsive to the needs of others.

The insistence on the importance of guiding enterprises toward meeting the needs and expectations of the social groups on which they have a direct impact instead of trusting the invisible hand or the “laws” of the market to do so is not ideological intransigence but a pragmatic position based on irrefutable evidence of the inadequacy of market relations ¹⁹ to achieve these purposes. The experience in Cuba with independent workers and private farmers and their intermediaries in “free markets” (known as “supply-and-demand markets”) has confirmed the arguments of Marxian economists that the logic and operating rules of market relations promote behaviors that at best are unaware of social interests.

For some Cubans it is already clear that markets not only are inadequate to ensure that enterprises meet basic consumption needs ²⁰ but also violate other social interests such as achieving certain levels of equality, justice, and solidarity. Market relations also make it harder for enterprises to assume social costs such as environmental pollution and unemployment and to share social benefits such as knowledge, technologies, and other resources. In the market areas that exist in Cuba today (agricultural produce markets and the exchange relations of independent workers) it is obvious that most sellers are not interested in meeting people’s needs: they prioritize the most profitable products at the expense of others that are greatly needed; they concentrate supply in sectors of the population with greater purchasing power but not greater need; they prefer selling small amounts at high prices to selling more at lower prices; they take advantage of situations such as weather events to sell at higher prices despite production costs’ not having increased correspondingly; they evade taxes; they use raw materials and cheaper technologies that affect human health and the environment; and so on. These “antisocial” behaviors are not the product of the imperfection of the market areas just mentioned, although they are accentuated by it, but the result of market competition itself and the scant or ineffective social control exercised over these economic actors.

It is also necessary for Cuban policy makers to acknowledge that market relations are inadequate to guide companies toward social interests not because buyers and sellers are bad people who need lessons in humanity or more demanding inspectors but because the very functioning of market relations forces them to prioritize their narrow interests above those of others and makes these behaviors appear “natural” and unavoidable to them. However, accustomed to standards of justice and rationality not common in other societies, Cubans do not understand why sellers make more money than producers, why the prices of products vary sharply and are not related to production costs, why in some localities products sold elsewhere are not available. The idea that there are always winners and losers is not passively accepted because it is evident that through the functioning of the market it is always the strongest or most fortunate who succeed and the weakest, through no fault of their own (elderly people, women, blacks, and other groups historically marginalized), who lose.

In a market system, any genuine attempt by a business to act in a socially responsible manner will generally affect its position in the market because it is antisocial behaviors that are rewarded and socially responsible actions that are penalized (Piñeiro, 2008a: 54–55). In addition, enterprise administrators have no institutional framework that allows them to shape their individual interests less narrowly. The bilateral and atomistic character of market relations prevents economic actors not only from taking into account the interests of others but also from even identifying them (Piñeiro, 2008b: 22).

Not even democratically managed enterprises can avoid the corrupting effects of market relations. They too will most likely end up behaving like capitalist businesses: guided by the logic of profit maximization, ignoring or going against social interests (Comisso, 1979: 110; Devine, 1988: 13; Hahnel, 2005: 355). Some have argued that these enterprises have an inherent tendency to internalize social interests even when they operate through market relations because the logic or purpose of their performance is meeting the needs of their workers, in contrast to capitalist firms, in which what is sought is maximum profit. ²¹ However, while self-managed firms may be more inclined to accept their social responsibility because it means moving from a logic of collective interests (those of the workers’ collective) to one of wider social interests, such social interests can generally be articulated only through coordination or democratic planning in which they are identified by consensus or thorough deliberation.

Undoubtedly, the system of planning that has marked the Cuban economy, although it has sought to ensure that all Cubans have access to basic goods and services, has not been effective in meeting certain social interests, especially those related to individual consumption and its heterogeneity. The system in which Cuban state enterprises have operated and into which agricultural cooperatives have been incorporated has not been efficient in the use of resources and has not motivated or allowed economic actors to offer their best. It has failed to create the economic conditions for the sustainability of the social improvements that have been achieved.

In a top-down planning system like ours, only in a limited way and formally democratic, the social control of enterprises depends on government managers’ effectively responding to the directives they receive from higher bodies and, above all, on those directives’ accurately reflecting social interests. Many economists have identified the constraints of an authoritarian (undemocratic and overly centralized) planning system both in recognizing social interests and in motivating state administrators to provide the information needed for effective planning and to fulfill the tasks assigned to them (Devine, 1988: 73–74, 88–91, 220–221; Hahnel, 2005: 94, 97–98). This should not, however, lead us to see market relationships as the only alternative to a planning system that is undemocratic (authoritarian, top-down) or to expect that a well-regulated competitive market will supply more and better goods and services, especially basic or “public” ones. It is possible to establish a superior synthesis that combines the advantages of decentralized activities with the benefits of activities guided by the needs and expectations of local communities and the social groups that they impact.

Procedures and institutions whereby representatives of consumers, residents, and producers can deliberate and decide what is needed and how to go about satisfying those needs—participatory methods—are feasible and necessary to bring economic activity under social control. In addition, methods of “participatory diagnosis” and “participatory budgeting” would help us to identify and utilize the potential of enterprises and other actors in the area and to motivate them to contribute further to local development. For example, if enterprise managers know that their fiscal contributions will be used effectively to satisfy social needs or, better yet, if they can participate directly or indirectly in decisions on how to use those funds and control their use through transparent accountability processes, they will better understand the implications of their actions, and it will be more difficult for them to evade taxes and other social responsibilities.

Since most nonstate enterprises, given their size and the nonstrategic nature of their activities, will fundamentally impact the communities closest to them, the social control necessary to ensure that they meet the material and spiritual needs of these communities can be exerted mainly through institutions and policies of local reach, directed by municipal governments or, for those heavily populated municipalities, by consejos populares (people’s councils), assuming that they really represent the interests of people in their area. In other words, local governments, with the aid of other local social organizations, should assume the responsibility for guiding and supporting enterprises in their areas in line with the interests of those communities and depending on the activities that enterprises undertake.

To do so, it will be crucial to create opportunities for coordination or democratic planning that include representatives of nonstate companies—ideally, organized in associations or councils—and representatives of social interests such as delegates of Popular Power, consumer councils, and other social organizations in those areas so that, after substantive, well-informed deliberation, strategies and development plans can be designed, budgets can be adopted, and, most important, execution can be monitored.

Once the social interests of a community are identified and action plans are designed, it is necessary that the regulatory framework for business activity in the area reflect a logic of commitment to the satisfaction of those social interests: that socially responsible behaviors be rewarded and behaviors that violate social interests be sanctioned. In this way, local governments will be able to establish policies to promote the creation of enterprises that satisfy unmet needs, make explicit expected and unwanted behaviors in the terms of operating licenses and contracts for lease, sales, financing, etc., and prioritize granting government sales, credit contracts, and favorable tax levels to those that more effectively reflect the interests of their communities. Businesses whose activities are related to basic needs could also be required to set prices on the basis of costs and benefits (without overlooking market dynamics), meet criteria for physical production and quality, and fulfill sales commitments to public institutions and other obligations.

To establish social control over trade and consumption, in addition to regulations the areas for market exchange of basic products that exist today (for agricultural goods and transportation services) could be socialized so that those who sell through them take into consideration the interests of consumers and surrounding communities. As in consumers’ cooperatives, these stores or exchange areas could be managed by people who really are accountable to consumers, making it possible to improve the price-quality relation and product choices. If local governments were truly democratic and effectively represented the interests of their constituencies, they could be placed in charge of managing these stores, but this would have to be done with full transparency and democratic decision making. Otherwise, residents could create an organization or consumer cooperative to perform this task.

The creation of opportunities for democratic planning and other methods of social control should not mean barring companies from establishing horizontal relations of exchange. These decentralized relationships are essential to businesses seeking to act flexibly and promptly and perform in a way that effectively satisfies social needs. Nor should it mean prohibiting them from trying to be profitable, which is clearly not possible or desirable. What is essential is that the logic of horizontal exchange relationships that guides the operation of enterprises should be not the maximization of profits for narrow individual or collective interests but the internalization of social interests, especially those of the groups that they impact.

Final Considerations

At the heart of the difficulty in assessing the adequacy of nonstate enterprises in the new Cuban economic model is the need to identify some essential principles that should characterize Cuban socialism in this new stage. The following questions ought to be answered: Does achieving greater social justice mean overcoming the wage-labor relation? Should enterprise activity be driven by social interests? In other words, is our goal not simply to increase the supply of goods and services to meet consumer needs but to make that supply accessible to the majority of the people, prioritize the most pressing needs, and ensure that the supply is the product of decent jobs that allow workers to develop fully by satisfying both their material and their spiritual needs?

If these questions are answered affirmatively, then nonstate enterprises are useful and appropriate for building socialism to the extent that their management is democratic and controlled not only by workers but also—directly or indirectly—by the social groups that are significantly impacted by their activities. Only in this way—democratically managed, under social control, and guided by a plan or a local development strategy—will it be possible to guarantee that they will satisfy social interests. This basically means democratic management of the local economy by communities through institutions and procedures designed by them in which workers’ overall human development is respected. Therefore, to the extent that new nonstate enterprises are run democratically and respond to social interests they are not only adequate but essential for the socialist transition and its sustainability.

Even if we focus on the local level, achieving this social control will definitely not be easy, nor will it be possible to advance toward the consolidation of these institutions in a linear fashion. There will be successes and failures, advances and setbacks. The task will require strong political will and sufficient time for local government officials, workers, and citizens to develop the skills and attitudes required for democratic self-management: productive deliberation, decision making by consensus, discipline to implement the agreed-upon actions, responsibility for decisions and actions, systematic monitoring, and transparency. But these skills and attitudes can be developed only through practice. It will undoubtedly be a process of learning new methods and considerable cultural transformation.

The easiest thing would be to “liberalize,” to “unleash” individual interest as the main motivational force in the form of permanent wage-labor and market relations, but I believe that a considerable proportion of Cubans, educated in the values of justice and solidarity and aware of their right to live in dignity, are willing to try to do better: to socialize or democratize rather than just to liberalize. Some of us demand the opportunity to manage our enterprises and local governments so that economic activities and social activities in general will contribute to satisfying our need to develop fully as human beings. Otherwise, we will be just tools for the profit maximization of a few. ²²

The current process of change that Cuba is undergoing involves great risks, but it was overdue, and it is an opportunity to expand the establishment of new forms of work organization that both create more productive jobs that meet consumer needs and generate tax revenues for local development. It is also, if we so decide, an opportunity to create institutions in which democratic skills, attitudes, and values are promoted that are indispensable for achieving a social order that focuses on human beings and not just material plenty and a social order that present and future generations of Cubans can feel is of their own making.

Only by democratizing and socializing the economy, materializing it as social property, can we move toward a society that has as its main goal the full human development of people and not just the redistribution of material wealth. Otherwise we run the risk that, on the pretext of creating material wealth, the profit motive will become natural, eventually clashing with the redistributive intent, and that one day abandoning the socialist project will appear “rational.”