Making self-employment more flexible: Hopefully the prelude to promising change

When Cuban authorities announced that significant changes would be implemented in the regulatory framework for self-employment, the reactions included practically every nuance of the issue. Although what was announced is the biggest transformation of the sector since 1993, the expectations and context of Cuban society have also changed radically since then.

For entrepreneurs, 2020 was a challenging year. Even for established businesses, the conditions are extremely challenging to stay afloat, let alone expand. Still alert to the details finally included in the new norms, the announcements until now signal positive steps. Among them, the broadening of the scope of action for the sector, including several professional activities; the public approval of licenses; the “one-stop shop” for the processing of applications and authorizations; and for many, the possibility of redefining the scope of their business without the need to accumulate “so many” different permits. 

However, several factors explain such a lukewarm reception to the moves. In fact, the commotion was greater outside Cuba than within. First, a regulatory change, while welcome, does not resolve the other obstacles that hinder the development of private activity, including access to financing in the banking system, direct participation in foreign trade, and the formation of a truly functional wholesale market. To which we could add the modification of the prejudices with which the sector is observed and treated by official institutions. Although the balance is positive, attention was drawn to the counterproductive and unnecessary nature of the prohibitions linked to professionals, creative industries and the tourism sector. This is all the more relevant because they may constitute negative precedents for future developments.  

For analysts, other questions arise. On the one hand, the sector is already of considerable size. And the national economy needs to move to another stage of development. One of the clearest contradictions of what has been done since the 1990s are the limited opportunities for professionals to make an economic contribution outside the state sector. The dominant view is that, if they start a business, they constitute a “loss” for state enterprises. This is despite the fact that, in many of these enterprises, they hardly have any opportunities for professional development. Prohibitions, if necessary, should be kept to a minimum.

On the other hand, policies towards the sector suffer from lack of focus, as a result of the short-termism that permeates them. The country’s potential is enormous, precisely because a good part of its workers are capable of undertaking very sophisticated tasks, which makes it necessary for the framework to distinguish between subsistence enterprises and others that have the potential for growth, including penetration of the international market. Economic development has more to do with the latter.

 

Above all, it is difficult to understand how this step is coherent with the announced step (although still without a definitive date) to implement the incorporation of Micro, Small and Medium Enterprises (MSMEs) of private capital, which can offer a significant qualitative transformation, to meet the needs of development, specialization and complexity of enterprises. The separation of personal assets from those of the company, legal security, and the possibility of participating in larger transactions are some of these. This step is not equivalent to, nor does it replace the previous one. And the shorter the time between one and the other, the better.

At the same time, a more comprehensive approach highlights some gaps that must be filled sooner rather than later. There is no appropriate legal framework for cooperatives, nor for truly self-employed workers, who fill a niche validated in all countries. This is related to more general problems that have plagued economic reform; basically the inconsistency of decisions, and consequently the impossibility of extending security and guarantees to the non-state sector for the future. This has resulted in undesirable effects ranging from the creation of fewer jobs, to the growth of informality and tax evasion.

After so many years without appreciable progress, hopefully this is a change that serves as a prelude to other transformations of greater impact. 

 

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