“The Problem of Labor and the Construction of Socialism in Cuba: On Contradictions in the Reform of Cuba’s

Regulations for Private Labor Cooperatives”

Larry Catá BackerW. Richard and Mary Eshelman Faculty Scholar & Professor of Law, Professor of International Affairs Pennsylvania State University

XXIII Annual Meetings of the Association for the Study of the Cuban Economy, Reforming Cuba, Miami, Florida, August 1-3, 2013

The Problem• emergence of the cooperative marks

a multi-year effort to reform the Cuban economy while preserving the fundamental character of the Cuban political economy characterized by strong central planning and state control of productive capital.

• Road to this point has been difficult• Fundamental problems

– Control of capital– Aggregation of labor power

• Implicates the relationship between Party, Party Ideology and the state, the tensions among which are reflected in the form and limits of economic reform.

Presentation Roadmap• Critical review of the

new Cooperatives regulations

• First: examine evolution of Communist Party Line expressed through Lineamientos;

• Second: close analysis of the regulations;

• Third: suggest structural issues and consequences of the new regulations within the context of the larger issues constraining Cuban economic reform.

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The Party Line• Lineamientos as the Framing Principles• Reform

– Strong state sector– Limited role for non-state sector

• Framed by licensing scheme for retail sector occupations• State retains right to intervene

• The role of enterprises– Privatization: from central planning to more SOEs – Corporations available only to SOEs – Fit into the limited space for private market activities. P181

The Party Line (2)• The role of cooperatives

– “con la finalidad de producir y prestar servicios útiles a la sociedad” Lineamientos P. 25.

– Interests have the character of social property that may not be negotiated. Lineamientos P. 26

– Limited juridical personality; negotiate property, distribute revenues. Lineamientos P. 27

– Revenues available only after payment of taxes and other impositions. Lineamientos P. 28

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Party Line (3)• Cooperative activity:

– may engage in private economic activity, but only after complying with whatever state obligation is imposed. Lineamientos P. 27.

– Principal obligations: pay taxes, comply with social obligations , serve the interests of the state by engaging only in approved activities

• Rule of law– Activities memorialized through contract. Lineamientos P. 22– state will increase its international credibility through strict

compliance with its obligations. Lineamientos P. 73.

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The Regulations-From Ideology to RuleGaceta Oficial de la República de Cuba, No. 53 Extraordinaria, CE DL. No. 305, 306; CM D. No. 309; MEP 570/12; MFP 427/12 (December 11, 2012). Available http://www.gacetaoficial.cu/pdf/GO_X_053_2012.rar.

--Consejo de Estado Decreto-Ley No. 305 and Decreto-Ley No. 306 (2012). --Consejo de Ministros, Decreto No. 309 (2012).--Ministerio de Economía y Planificación Resolución No. 570/12, and --Ministerios de Finanzas y Precios Resolución No. 427/12.

http://www.oncubamagazine.com/latest/non-agricultural-cooperatives-in-cuba-first-news-comes-out

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Consejo de Estado Decreto-Ley No. 305; the corporate law of cooperatives.

– Preamble: • Emphasis on limited free market coops as experimental

– Articles 1-10 focus on general principles and provisions. • clear that these enterprises are meant to remain small and closely tied

to the primary contributions of its members. • emphasis on the social obligations of cooperatives

– Articles 11-18 touch on approvals• Local or national approvals required

– Each coop product of review and negotiation with authorities– No standardization; coop still a privilege and not a right if statutory

conditions met (pre-1900 Western view of incorporation by special act)

– Articles 17-19 deal with the structures of corporate– Articles 20-25 cover Issues of corporate (cooperative) finance

Consejo de Estado Decreto-Ley No. 305; the corporate law of cooperatives

(2). – Article 26: contract labor hiring by cooperatives.

• 3 month maximum term• Treated as path to membership

– Articles 27-29 focus on resolving conflicts among cooperative members.

• Emphasis on internal mechanisms; judicial action last resort – Articles 30-32 touch on dissolution and liquidation

Consejo de Estado Decreto-Ley No. 306; governmental impositions and the private sector contributions to the national social

security system.

• sets out an ambitious program of capturing hoped for revenues from the operations of cooperatives.

• object of this provision is the same as that of similar provision in Western welfare states—

– tax economic enterprises with the social costs of maintaining public support services for individuals

• A very large and perhaps prohibitive transaction cost for business– Especially when taken together with

• potential for substantial state control of cooperative activities and internal organization• possibility that the state could rescind the entire experiment at its whim, • the burdens on the cooperative enterprises beyond the usual business risks (approvals, etc.)

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Council of Ministers--Decreto No. 309, the Implementing

Regulations. • The real guts of the regulatory edifice.

– Articles 1-2: regulatory framework• Reinforces experimental nature of this regulation• Frames the autonomy within the tight control of tax, pricing, accounting

and other authorities– Articles 3-6: cooperative constitutions

• These are subject to review and approval at various levels of government

• Provisions subject to change by approval agencies– Articles 7-10: operation of cooperatives pending approval

• permits limited activities pending approvals• At this stage that the local approval agency can negotiate final form of

coop constitution

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Decreto No. 309, the Implementing Regulations (2)– Articles 11-12: details for setting up Coop– Article 13: bidding for state assets– Article 14-15: flesh out social purpose constraints

• defines the social object simply as the commercial activities of the cooperative.

– Article16-25: On the internal governance instruments of coops– Articles 26-32: obligations/rights of Coop members

• Loss of status; benefit of bargain rules• Member discipline in Articles 67-69

– Articles 33-45: rules relating to internal governance• ordinary and special meetings of collective bodies, quorum rules, notice

of meetings, agendas, and the like

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Decreto No. 309, the Implementing Regulations (3)– Articles 46-62: Coop capital and accounting (Régimen Económico)

• Dividend rules tightly managed• Mandatory reserves (30%) of profits

– Article 63-65: payment to members and contract labor– Articles 66: “Commercialization” of goods and services

• Art. 66.1,2: “las Cooperativas pueden realizar ventas directas sin intermediarios, después de cumplir sus compromisos con el Estado, en los casos que corresponda.”

– Articles 70-74: procedures for mediating conflict– Articles 75-77: dissolution and liquidation

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The Ministerial Resolutions• One provides, in 22 articles, the procedures for bidding on state

property that is to be contributed to the operation of a cooperative.– “La presente resolución es solo de aplicación en los casos en que se liciten

los bienes de un establecimiento estatal para su gestión por las cooperativas

no agropecuarias.”• The second resolution deals with issues of taxation, accounting, and

pricing for goods and services provided by cooperatives. – Contemplates monthly payments– Pricing is set by the market (“se determinan por estas, según la oferta y

demanda”) unless they are otherwise required to be set at a particular amount by the state (Paragraph 12).

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The Problem of Labor and the Construction of Socialism in Cuba

• The Lineamientos Points to Substantial Conceptual Differences Among factions of the CCP. – The leftist elements within the Cuban Communist Party is still

powerful enough to block even the sorts of reforms possible in China in 1978.

– Leftward turn in Lineamientos and control elements ion regulations

• The Economic Reforms May be Impeded by the Need for Legal Reform. – It is not clear that Cuban institutions are yet capable of supplying

the necessary public infrastructure; – non-state alternative dispute resolution structures unlikely. – absence of certain and consistently applied practices at the state

level

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The Problem of Labor and the Construction of Socialism in Cuba • The Regulations Produce the Form of Rule of Law

Frameworks But Preserve the Political Discretion of the State to Make the Rules Available to Individuals. – application approval contingent on determination that the purposes

and operations of proposed cooperatives are of benefit to the state. • what emerges is a system in which state sector officials continue to

control virtually every aspect of the organization, operation, pricing and transactions of these enterprises in ways that might reduce these to little more than extensions of state operations.

– Discretion and corruption– Discretion and regulatory incoherence

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The Problem of Labor and the Construction of Socialism in Cuba • The Problem of Labor Under the Regime of Capital.

– The move toward cooperatives represents an important nod in the direction of labor empowerment.

– But the implementation of the concept continues the long tradition, in both capitalism and Leninist Marxism, to understand economics through the privileges of capital

– Labor remains subordinate top the problem of the control, management and generation of capital.

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Thank You!PAPER AVAILABLE: http://www.thecpe.org/wp-content/uploads/2013/05/ProblemofLaborinCuba.pdf