Attack on entrepreneurial inflexibility

A group of decrees and resolutions are promoting changes in the functioning and authority of enterprises, granting them greater autonomy and confirming the entrance of the process of Cuban transformations in a more complex stage.

Recent legal norms granted autonomy to enterprises and ratified fidelity to socialist planning, but recognised the need to take into account the market.

A few days before the May Day celebrations, a package of legal norms came to light in Cuba that take the process of transformations to one of the most complicated fields and, by economic logic, of greater impact: the enterprises.

A brief Council of State Decree-Law, number 320 of 2014, ratifies planning as an instrument of entrepreneurial leadership, while the policy of doing so with sights set on the market simultaneously appears in other norms. Decree 323, of the Council of Ministers, modifies the rules of the game of the entrepreneurial system, approved and successively adjusted since 2007, and a trio of resolutions, two from the Finances and Prices Ministry (MFP) and one especially sensitive from the Labour and Social Security Ministry (MTSS), complete the new legislation.

In essence, the package grants greater authority – and responsibility – to the entrepreneurial leaderships when the time comes to make decisions. Meanwhile, it reorganises the financial relations between enterprises and between these entities and the State, in line with the strategy of decentralising and distancing the ministries from the habit of deciding even matters of scarce relevance of the enterprises.

Though the Gaceta Oficial presented them on April 28, almost at the end of the fourth month of this year, the novelties had been announced by Vice President of the Council of Minister Marino Murillo since July 2013, as part of the directives of the 2014 Economic Plan.

The stipulated changes develop a previous play, which made flexible since May 2013 the concept of social object of the enterprises. These economic entities will have more autonomy to move, expand, set prices and sell productions and services they are able to create after fulfilling the so-called state orders. The traditional inflexibility and verticality of the social object was one of the many obstacles for developing the productive forces and left “great productive capacities unused”, as national and foreign dailies observed at the time.

One of the MFP resolutions, the 181 of 2014, authorises “the top leadership of the enterprises to approve the wholesale prices for the sale of productions that constitute surpluses of the state order of the entity”. And it stipulates taking into account the market when setting those prices – “according to the correlation between supply and demand” -, one of the important signs incorporated by the reform known as Updating of the Cuban economic model.

In the spirit of loosening, or at least making the ropes longer, the other MFP resolution, the 203, expands up to 50 percent the amount of the profits after taxes that the enterprises will be able to keep. Neither will they have to hand over the depreciation and amortisation of tangible and intangible set assets nor the reserves not used in previous years. With that capital they will be able to create a fund to finance investments, cover loses, amortise debts or distribute profits among the workers, among other options.

In this way, one of the most controversial activities of the Cuban economic system is advancing toward decentralisation.  Under the previous norm, the government practically decided all the investments in the enterprises and did so to a great extent based on the capital collected through the taxes they paid. Frequently elemental investments or of scarce margin needed a ministerial signature, using as a guide the request of the real actors and not the real knowledge of the officials of the Economy Ministry regarding needs. Or that agency decided which enterprise it would capitalise, even though the selection did not always respond to the potential reflected by the marketing and the profits of those entities.

The key with the most impact was played by Resolution 17 of the MTSS, linked to one of the recurrent demands of the workers in Cuba: the wage policy. In an attempt to amend a legal norm approved previously with not much success – the number 9 of 2008 -, the new legislation reorganises the rules for payment by results.

The regulation proposes “eliminating administrative restrictions to encourage the increase of work productivity in the entrepreneurial system and modify the authority for the approval of the form of payment by performance.” The enterprises’ leaderships will have more autonomy to decide on the method to pay workers by item in order to really motivate productivity and quality.

The principal advantage of Resolution 17 is perhaps that it enters the scene more integrated to other changes in the world of business and in the economy, compared to the previous one. But it will still be hindered by structural deformations like dual currency and exchange rates, with a rate in the CADECA exchange houses that considerably degrades the purchasing power of the currency in which the workers are paid.

Very awaited in entrepreneurial spheres since Murillo explained those changes to the MPs in July last year, the new legal norms undertake transformations in an area – more than 2,000 enterprises – that supports the main body of the Cuban productive wealth and around 49 percent of the labour force. Therefore, they contribute another sign that the Cuban economic reform has entered a more complex and ambitious stage. (2014)

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