larry catá backer w. richard and mary eshelman faculty scholar and professor of law ; professor of...

Larry Catá BackerW. Richard and Mary Eshelman Faculty Scholar and Professor of Law ; Professor of International AffairsPennsylvania State [email protected]

© Larry Catá Backer 2011

Organizing Cuban Economic Enterprises in the Wake of the Lineamientos—Property Rights in Economic Organization Between Corporation, Cooperatives and Globalization

22nd Annual Meeting of the Association for the Study of the Cuban Eocnomy (ASCE)“Where is Cuba Going”August 3, 2012

Order, Discipline and Exigency

Introduction: Property Rights in Marxist-Leninist Regimes

--In the West notions of property are at the center of economic and political organization--the law-state is focused on systems for the taxonomy and systemic protection fo property (what is property and legal rules for its management).--Individuals can aggregate property for the production of private wealth; organized as corporations, this property assumes a double character

shares are property in the hands of shareholdersthe corporation as an autonomous entity is a holder of property in its own right.

--The relationship of property to the individual, the proletariat and the state has been at the center of revolutions in Marxist Leninist theory for the last generation.

--Traditionally all capital belongs to the revolutionary elements organized within a structure of democratic dictatorship awaiting the transition from socialism to pure Marxism.

--Deep embedding of idea of separation between property ownership and use--productive property as inherently political; an instrument for the satisfaction of

the needs of the people. --individual ownership in the absence of state control or direction could be understood as a challenge to the unity of the people and a political threat


Introduction (2): Property Rights in Marxist-Leninist Regimes

--Split Within Marxist Leninist Community

--In China --Post 1978 changes relationship between state and property--Abandon central planning in favor of central direction and control

(from micro to macro management. . . With exceptions)

--In CubaStill deeply committed to central planning model--Strong commitment to the direct ownership and management role

of the state in economic activity--remnant of Soviet approaches

--Strong pull away from Soviet model


•This essay examines the consequences of the current approach to the creation and management of economic enterprises within Cuba.

• That approach is grounded on the creation of distinct spheres of economic activity

• Private and centered on consumer goods and services• Public, centered on the reorganization of state managed economic

activity• National, centered on the development of an integrated economy

grounded in Party Line principles• Regional, centered on the development of state to state economic

activity under the ALBA model •This requires a careful balancing of the logic of a centrally planned and public oriented Marxist Leninist approach to economic control and the logic of the framework of a market’s based system of economic globalization

• That balancing produces the potential for contradiction • Heart in the tension between the forms of economic globalization

and the current conventional framework of Cuban Marxist Leninist state organization


•First, examine the development and structure of economic organization structured around:

• a limited space for individual economic activity in the shadow of but not directly managed by the State.• The Lineamientos’ provisions and the allocation of permitted forms of economic activities and its limits:

• Private individual enterprise• Corporations• Cooperatives

•Second, considers the cooperative in more depth: •Suggest its benefits and limitations within confines of Cuban political ideology and what it may mean for the future course of the development of Cuban State-Party ideology.

•Third, provides a contextual analysis of the Cuban approach within the structures of Cuba’s regional economic engagements:

•The internationalization of the Cuban model through the structure of ALBA


Setting the Context—The Lineamientos and Economic Activity


Distribution and approval of the Lineamientos

Widespread democratic circulation and consultation in and outside of Cuba Consideration and unanimous approval of the Lineamientos at VIth Party Congress of the Communist Party of Cuba

313 Sections—Suggestions for action affecting nearly every aspect of Cuban economic life. Companion booklet (Tabloide)--summarizes the changes between the draft Lineamientos and the official reasons for the changes.


Failing Economic Model and the Development of the Lineamientos

Acknowledgment that current system of state organization and economic model ineffective.

Acknowledgment that something had to be done.

First, prior to the introduction of the Lineamientos: limited opening up of sole proprietorships and small farm holding

Second, development of the Lineamientos and public circulation (Autumn 2010). Party developed, State implemented.

Ordering Cuban Private Economic Enterprises

The Lineamientos de la política económica y social del partido y la Revolución

The Lineamientos serve as a basis for reordering the failing economic framework within Cuban socialism. Although the Lineamientos focus predominantly on economic reform, the Lineamientos also address the forms of economic organization).

http://www.jofr.org/wp-content/uploads/2011/05/Raul-Castro-Opens-6th-Cuban-Communist-Party-Congress.jpg


Lineamientos

A Danger of Contradiction:

Starts with a determination to preserve the gains of the Revolution but then bows to the realities of the economic situation that has brought the Party to the revaluation of its values.

Guarantee changes to the system by which services are provided, but limit those promised changes to those possible under existing economic circumstances.

Focus on internal development but with a necessary eye to the place of Cuba within a globalized economic order

Bounded by the conceptualization of globalization within the ideological parameters of ALBA.


Experimentation and the Focus of Lineamientos

Since the adoption of the Lineamientos in 2011, Cuba has embarked on its own version of economic experimentation within its own sense of its Marxist Leninist organizational principles.

Some of the elements of this experimentation have been widely discussed and criticized—from the efforts to produce a rigidly controlled class of proprietorship businesses, to the limited and highly regulated efforts to open agricultural cultivation to farmers.

Less well treated are the institutional forms in which economic development is to be undertaken.


Permitted Forms of Economic Activity

Corporations

Private Individual Enterprise

Cooperatives

Grannacionales


Corporations Problematic for Marxist Leninist States

Corporations constitute property in the hands of their owners. But corporations also constitute collective persons, and in that respect mirror the state.

As juridical persons, as great collectives of people and resources, operating in accordance with their own constitution, and serving the needs of their constituents, corporations operate as institutions, with social, political, and economic power.

Marxist-Socialist states are grounded on the fundamental notion of state monopoly over the social, political, and economic organization. Collectives of people, of things, operating independent of the state, even if subject to state regulation, deprive the state of its monopoly position, and, if they can amass enough power, threaten the fundamental ordering principles of state organization.

Retaining an organization based on the suppression of all collectives other than those “owned” by the state provides the simplest and most effective form for safeguarding the Marxist-Socialist character of the state.


Corporations and Foreign InvestmentSince the 1990s, Cuba has revised its Constitution and laws to permit joint ventures between state enterprises and foreign corporations, and to provide for the operation of foreign corporations within Cuba.

Cuban economic policy limits the economic activities of foreign corporations and joint ventures to export-oriented activities within a few small economic development zones.

The internal Cuban economy is substantially insulated from the activities of these enterprises, and Cuban individuals are substantially prohibited from forming or investing in these export-oriented enterprises.

In other respects, Cuba retains a commercial code little different from the Spanish colonial law it inherited at the end of the nineteenth century and a primitive corporations law.

http://aviewtothesouth.blogspot.com/2007_01_01_archive.html


Corporations Under LineamientosThe corporation remains an instrument of state policy.The socialist system continues to frame economic organization (P. 1)

For that purpose socialist state enterprises may be formedThese constitute the principal form of national economic activity (P. 2)

And additional forms of economic organizations may be recognized (mixed enterprises, cooperatives, individuals operating as sole proprietors, various agricultural ventures, all organized to increase economic efficiency (P. 2)

Individuals are not permitted to aggregate property in juridical or natural persons. (P 3).


Corporations Under LineamientosCuban foreign investment law has been criticized outside of Cuba.

The system is highly inefficient. Individual authorization is required for every foreign entity. The areas set aside for investment are limited and designed more like quarantine zones than economic zones. They are meant to prevent all but the most controlled contact between Cubans and foreigners. Moreover, the underlying law of contract through which business and investment relationships must be effectuated within Cuba remains, by global standards, primitive.


Corporations and the Rejection of the Chinese ModelThe arguments

The Chinese model does not work

Neither Maoism Nor Stalinism Has Overcome the Contradictions of Marxist-Leninism and the Autonomous Private Economic Collective

Cuban Stalinism is Incompatible with the Maoism Critical to the Chinese Model

Cuba Remains Isolated From Global Capital Flows

American Policy May Make Adoption of the Chinese Model Impossible

Cuba May Not Yet Be Able to Compete in the Global Marketplace


For Individuals--Sole Proprietorships

Backbone of privatization:

Large scale economic activity remains the sole province of the state. The state has been careful to limit the sorts of occupations or economic activities to which liberalization applies. About 178 occupations are listed. suggests a focus on the lowest level of economic activity--that is on activity with respect to which aggregation of labor or capital is not required.

The small local sole entrepreneur, then, is the model that is to be cultivated at the heart of the reformation of the political economy of Cuba.

One can view this either as bottom up development or as the necessary bifurcation of the economy, with a market based local sector and a state sector for everything else.:


Sole Proprietorships

In addition to strict controls on the sorts of occupations subject to liberalization, the State will tightly control the economic activities with respect to which private markets will be permitted.

"Alhuerdi explicó igualmente que el otorgamiento de nuevas autorizaciones para el ejercicio del trabajo por cuenta propia se mantiene limitado por ahora en nueve actividades, porque no existe un mercado lícito para adquirir la materia prima, aunque se estudian alternativas que lo viabilicen." Leticia Martínez Hernández, Mucho más que una alternativa, Granma, Sept. 24, 2010.

http://www.granma.cubaweb.cu/2010/09/24/nacional/artic10.html Markets control is indirect--it is focused not on the markets for activities permitted, but rather focuses on markets for materials necessary to conduct business in a wide variety of activities that might otherwise have been permitted. Access to these markets will be carefully controlled and changes made slowly over the course of 2011 and beyond.At its base, these secondary markets will be treated as part of the controlled sector.

http://www.granma.cubaweb.cu/2010/09/24/nacional/artic10.html


Sole Proprietorships

It clearly emerges that the principal objectives of the state are to convert workers from cost items to revenue generators.

The hope is that as a result people will have a larger assortment of goods and services available and the state will not be burdened with the subsidies necessary to provide these items. Work flexibility is taken to redesign the political economy of the Island to increase individual productivity and efficiency as well as to provide a means through which workers can feel more useful, change popular conceptions of work, and to reduce its stigma. And the revenue generated is not merely available to the producers but also to the state in the form of taxes

http://en.mercopress.com/2009/11/12/cuba-drastically-slashes-farm-bureaucracy-to-boost-food-production


Cooperatives

As an alternative, the Cuban state apparatus, and its intellectual elites, have been exploring an alternative--the cooperative form.

Much of the theoretical justifications and arguments supporting this form as an acceptable alternative for the organization of private economic activity has been recently explored in a collection of important essays published as Cooperativas y socialismo: una mirada desde Cuba (Camila Piñeiro Harnecker, editor; La Habana: Editorial Caminos 2011)(ISBN 978-959-303-033-5).

For cooperatives to work as an alternative acceptable under the current regime's assumptions about the corporate form, it would be necessary to distinguish between the autonomous governance form at the foundation of the corporate form and a cooperative form more amenable to state supervision and control.


Cooperatives Under the Lineamientos (P. 25-29)First level (primer grado) Cooperatives are recognized an economic organization with legal personality who aggregate goods and labor

Interests in cooperatives have the character of social property that may not be negotiated (in contrast to shares)They may enter into contracts with other entities and natural personsThey may also determine the distribution of funds to participants

Second Level (segundo grado) cooperatives made up of first level cooperativesCan be formed as separate juridical persons Objective to facilitate the business of the associated cooperatives.


Cooperatives versus Corporation

Cooperatives involve aggregation of effort divorced from ownership of means of production in which labor controls management decisions

A co-operative is a group or association of persons that have joined voluntarily to satisfy economical needs and aspirations, social and cultural that are made common thru a business of common democratic own property, autonomous and open.

What is important in a co-operative is no who is the owner of the means of production, the important thing is that the collective of workers can have access to them, thru a truly democratic management.

Meant to apply to small aggregations of individuals No aggregation of capital


Cooperatives versus Corporation

Co-operatives must differentiate from capitalist corporations, in a substantive manner.Table 1 fundamental differences between the capitalist corporations and the co-operative.

Capitalist Corporations Co-operativesControl of the decision stockholdersmaking process contribute capital contribute labor

Destiny of the enterprise stockholder control labor control

Income of the workers stockholder control labor control

Democratic rights of the workers external; union internal

Main objective maximize S/H wealth satisfy labor needs

Primary motivation of the proprietors Individual benefit Collective benefits, material and spiritual


Recent efforts to translate cooperative form into law

Recently, the Cuban state has moved from theory and intent to practice.

It was announced that Mafrino Murillo, the Vice President of the Counsel of Ministers, confirmed the preparation of new rules for the operation of cooperatives outside the agricultural sector

("Vicepresidente del Consejo de Ministros, Marino Murillo, confirma preparación de decreto ley y reglamento para ampliar las cooperativas al sector no agropecuario.")(From Cuba priorizará sector cooperativo, Inter Press Service, March 27, 2012). The announcement was timed to coincide with the visit of Pope Benedict XVI and was meant to suggest sustained movement to implement the Lineamientos approved by the Party and State apparatus, without encouraging political reform. (Ibid).

The move to liberalize the use of cooperatives is meant to be part of the larger strategy of opening the agricultural sector, reviving the tourist, extractives and biotechnology sectors without significantly altering the nature of political control of economic productivity.


Cooperatives

Is the co-operative of production an adequate organization form for a society compromised with the construction of socialism? Three main concerns

Utopia and impossible to implement Difficult to distinguish it from state owned enterprises. It can become too autonomous and effectively mimic corporations

Cooperative form:

When explaining what a co-operative is, the fundamental differences that exist between a co-operative and state business.

No representative organ of governance (Board of directors) Instead workers are directly involved in the decision making process of the

enterprise. it is a principle established in the rights of the workers in its internal

regulations, and exercised by departments (organs) and procedures that are designed and approved by them


Cooperatives

Role of the state

responsible for coordinated planning But tension between the autonomy of the cooperative as focused on worker desires, and the larger issues of state needs. Discipline through the imposition of socialist welfare maximizing sensibilities (drawn from ALBA principles discussed below). Consider direct links between cooperatives and state enterprises or ministries.

Role of Markets:

Several points of contention. Should cooperatives be able to hire employees or should all workers be

members of the cooperative Pricing for goods and services: set by state or by the cooperative Recognition that over taxation would be passed through to consumers in the

form of higher prices

ALBA beneficia a 75 millones de personas mediante las empresas grannacionales http://www.lavozdelsandinismo.com/alba/2011-10-26/alba-beneficia-a-75-millones-de-personas-mediante-las-empresas-grannacionales/


Internationalization: Grannacionales as IdeologyThe organization of the Cuban economy and its understanding of the notion that property remains a prerogative of the state is embedded in Cuba’s regional foreign relations.The conception of grannacional is divided into three components,

historical and geopolitical,

socio-economic, and

ideological.


Grannacionales as Ideology

The first, historical and geopolitical, is grounded in the sense that the business of the construction of Latin America, started with the wars of liberation of the 19th century, is unfinished. Its object is integration at the supra-national level, that is, to understand grannacionales as the formal expression of efforts to create a single nation.

The second component, socio-economic, understands the commercial activity and its traditional forms as a functional means to reach the political ends of integration. Grannacionales are meant to serve as the great vehicle for state directed development.

The third, ideological, envisions the grannacional as functional integration devices advancing political and economic aims of the state. Specifically, the grannacional enterprise has as its objective the manifestation of a united front by generating a multi-national block for the structuring of sovereign regional politics.


Consequences when looked at from the perspective of conventional economic globalization:

--efficiency is measured differently than in classical economics or under the framework of conventional economic globalization. It is understood only in relation to the aims of the state in meeting its political goals, measured to some extent on the state’s assessment of its ability to meet the needs of a majority of its people. Both the political and needs objectives are also constructs of state policy.

--This produces something of an inversion from concepts in classical economics.


Implementation: proyectos grannacionales” (PG) and “empresas grannacionales” (EG) as engines.

PG’s: reorganization of key sectors of state activity around which state to state activity is contemplated.

key fields of activity, encompassing political, cultural, economic, scientific, and industrial activity.

This organization is grounded in ALBA’s normative construction of principles of “just trade” and solidarity commerce,

Three principles—barter transactions, non-reciprocity in trade relations, and differential treatment of trade partners to

advance national and development objectives (commercio compensado, no-reciprosidad, y trato

diferenciado


Implementation: EG’s as socialist multinational

EG’s are entities created to carry out the economic and trade activity organized through PG’s.

If PGs are meant to organize productive activities, EGs are meant to implement them in an orderly way.

Organization: EGs are all state owned enterprises, established a separate juridical persons, interest in which is measured through share ownership by participating ALBA Member States. (ALBA Jan. 27, 2008). But they might be organized in other ways by special legislation or as a department of a ministry.

PG and EG projects are not limited to be established at the supra- national level—single state PGs and EGs may be created as long as they are consonant with ALBA principles and goals.

Relationship between PG and EG is not strictly linear—though it is clear that every EG must derive from a PG, not every PG will

require the establishment of an EG.


The Objectives of EGs as Socialist Multinationals

Embody an alternative to the model of the private multinational enterprise. EGs are said to invert the traditional maximization model by seeking to maximize the welfare of the objects of economic (or other) activity, rather than those involved in the production or financing of that activity.

--are autonomous and --might enter into joint venture arrangements with private

sector enterprises. --primary focus of activity is within the ALBA zone;

“excess” activity directed outbound.

EFFECT: regionalist globalization model with economic activity directed by states rather than through markets.

This suggests a new face for traditional command economy activity, but it is unclear whether it also suggests a change in function.


EG Operations: Stakeholder Welfare Maximization, “Fair Price” and “Just Trade”.

EGs embrace the form of organization and production of private multinational corporations, including supply and production chain principles, and resource procurement optimization.

--But their intense connection to states makes them both regulatory and commercial vehicles.

But pricing grounded in notions of “fair price” --definition is ambiguous, though likely grounded in principles of “just trade” and solidarity identified by the state. --can be understood as a political rather than a conventionally economic principle.

That is in line with ALBA’s core notion of the conflation of politics and economics. That, in turn, is in line with ALBA’s core political principle of the inseparability of public (sovereign) activity and market activity of state or private actors.


What Makes the Concepto Grannacional innovative?1. Internationalize state-based central planning model.

2. Adopt conventional organizational forms from emerging private markets framework of economic globalization.

3. Changes conventional welfare maximization model from a focus on the shareholder (or the firm) to something like national welfare maximization effected through firms.

Internationalizes the corporate model of the Cuban State.

-- state-based central planning and control model within a regional trade zone.

Cuba lay-offs reveal evolving communism, BBC News Latin America, Sept. 2010: http://www.bbc.co.uk/news/world-latin-america-11302430


Moving Forward

Complexity and Contradiction:

Contradiction of the efforts to transform Cuba’s economic systems without changing its social systems.

Nothing changes in the fundamentals of the organization of the Cuban state, yet everything changes within the context of that unchanging normative framework

State continues to control sectors of production and retains a monopoly on operation in corporate form. The people are expected to engage in autonomous economic activity meant to generate wealth for themselves and the state (through taxation) and the Party is meant to provide the guidance.


Moving Forward

Limited Liberalization Guarantees Continued State Control and Party Influence:

Focus of the changes is on the creation of a class of sole proprietor.

Liberalization occurs only at the lowest level of economic activity

Activity with respect to which aggregation of labor or capital is not required.

Large scale economic activity remains the sole province of the state.

Principle objective labor productivity that is more self directed. Aggregate activity, both internal and external remains the province of the state.


Moving Forward

From Cost Item to Income Generator:

The Cuban government hopes that a rationalization of public services provided will increase productivity via citizens’ sense of the necessity to work as a means of generating income

The Cuban government hopes that people will have a larger assortment of goods and services available and the state will not be burdened with the subsidies necessary to provide these items.

Moreover, the revenue generated is not only available to the income generators, but also to the state in the form of taxes.


Moving Forward

Change at the Margins:

Changes to the Cuban political economy assumes a coherent shape that is hardly revolutionary or otherwise points to a rejection of its current framework.

And, indeed, the fear of operation in corporate form, in aggregations of people and capital that appear autonomous of the state (something permitted in China) may do more to reduce the success of this opening than any machination of Cuba's external enemies.

Sometimes a mania for control may prove fatally counterproductive to the maintenance of that control The Chinese Communist Party understood this in 1978 (though it took a generation to produce results); it is not clear that the Cuban Communist Party is willing to open itself to that lesson.


Moving Forward

Continued Contradiction and Inherent Challenges:

Many of the economic provisions, and the overarching purpose of the Lineamientos, will make it difficult to preserve and improve the Cuban economic system in its current form.

First, the current economic and institutional model is unsustainable.

There is little in the form of institutional structures to produce and absorb change. The pressures and reliance on central planning will continue to bottleneck the

economy.

Second, the partial opening of the market may present difficulty in predicting industries and technologies upon which to direct limited resources.

The issue of CORRUPTION remains problematic—an internal CCP concern but still reluctant to go public on corruption; compare China.

The exportation to ALBA systems only extends the difficulties


Conclusion

A careful review, then suggests that the great changes to the Cuban political economy assumes a coherent shape that is hardly revolutionary or that otherwise points to a rejection of its current framework. This is change at the margins, even if understood as significant within the framework of Cuban political thinking.


Conclusion

Control remains the key, and the avoidance of the creation of potential challengers to state-Party power critical. The State controls private economic activity in three ways:

First it does not permit aggregations of economic power by individuals.

Second, the State limits the occupations with respect to which private activity is permitted.

Third, the state tightly controls markets open to private activity however it is described.

For the state: aggregations in corporate form, ventures with foreigners and access to foreign capital.

For the individual: small business tied closely to the delivery of consumer goods and services locally; not meant to compete with the state or state SOEs


Conclusion

That control framework extends beyond the internal organization of the Cuban State

Replicated in the ALBA group and the organization of grannacionales.General focus rejects maximizing shareholder value, the ALBA entities maximize national welfare, as those things are measured by the states who participate (and regulate those markets). ALBA Member States have sought to turn the conventional economic model from one that privileges private interests to one that adopts the forms of private organization, but in which the state acts as both regulator and shareholder.

Whether the experiment will succeed remains to be seen, but the search for forms of economic organization that are not necessarily grounded in shareholder wealth maximization, and that serve social goals, even those controlled by the state apparatus, may provide insights and models of use elsewhere and for other purposes.

Thank You!!!


Cooperatives Under the Lineamientos (P. 25-29)LAS COOPERATIVAS25. Se crearán las cooperativas de primer grado como una forma socialista de propiedad colectiva, en diferentes sectores, las que constituyen una organización econó-mica con personalidad jurídica y patrimonio propio, integradas por personas que seasocian aportando bienes o trabajo, con la unalidad de producir y prestar serviciosútiles a la sociedad y asumen todos sus gastos con sus ingresos.

26. La norma jurídica sobre cooperativas deberá garantizar que éstas, como propiedadsocial, no sean vendidas, ni trasmitida su posesión a otras cooperativas, a formas de gestión no estatal o a personas naturales.

27. Las cooperativas mantienen relaciones contractuales con otras cooperativas, em-presas, unidades presupuestadas y otras formas no estatales, y después de cumplido el compromiso con el Estado, podrán realizar ventas libremente sin interme-diarios, de acuerdo con la actividad económica que se les autorice.

28. Las cooperativas, sobre la base de lo establecido en la norma jurídica correspon-diente, después de pagar los impuestos y contribuciones establecidos, determinanlos ingresos de los trabajadores y la distribución de las utilidades.

29. Se crearán cooperativas de segundo grado, cuyos socios son cooperativas de pri-mer grado, las que tendrán personalidad jurídica y patrimonio propio y se formancon el objetivo de organizar actividades complementarias afnes o que agreguenvalor a los productos y servicios de sus socios (de producción, servicios y comer-cialización), o realizar compras y ventas conjuntas con vistas a lograr mayor eficiencia.

larry catá backer w. richard and mary eshelman faculty scholar and professor of law ; professor of...

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