Self-employment in Cuba: between informality and entrepreneurship – the case of shoe manufacturing

Abstract

This article discusses the phenomenon of self-employment in Cuba from three perspectives: its conceptualisation, its links with informality and the challenges to its growth. First, it reviews the characteristics of self-employment in Cuba, in comparison with available theory and with various studies of informality carried out in other countries. Second, it documents the dimensions of informality and Cuba’s black market economy through the study of a specific sector of the independent labour force: shoe producers. Third, it considers the main challenges for the growth of self-employment in Cuba, as illustrated by the case of Cuban shoemakers, and draws some lessons that should improve the situation of this sector, taking into account different international studies.

Keywords:

• Self-employment
• informality
• shoe industry
• economic reform
• Cuba

Notes

1. See Castro, “Discourse pronounced by Raúl Castro (President of Cuba), in the 5th Regular session of the VII Legislature of the national Assembly.”

2. Villanueva and Vidal, “Entre el ajuste fiscal y los cambios estructurales”; Arredondo, “La micro y la pequeña empresa privada en Cuba”; Centeno and Portes, The Informal Economy; Diaz and Piñeiro, El trabajo por cuenta propia en Cuba; González-Corzo, “Cuba’s Emerging Self-employed Entrepreneurs”; Triana, “From the Submerged Economy to the Microenterprise”; Feinberg, Soft Landing in Cuba; and Ritter and Henken, Entrepreneurial Cuba.

3. The official Cuban term is ‘trabajo por cuenta propia’ (TCP): ‘own-account’ work or self-employment; those undertaking such work are referred to as ‘cuentapropistas’, here ‘self-employed’. In addition, there is a special category of TPC licence for ‘contracted workers’, who are employed by other self-employed workers.

4. ONEI, Statistical Yearbook of Cuba, 14.

5. Resolution 41, “Reglamento del ejercicio del Trabajo por Cuenta Propia,” Chapter II, Bridge Provision.

6. Resolution 41, “Reglamento del ejercicio del Trabajo por Cuenta Propia,” Article 6.

7. ILO, Employment, Incomes and Equality.

8. Arredondo,“La micro y la pequeña empresa privada en Cuba.”

9. Ochoa, “Economía informal.”

10. See the official website of the Statistical Department within the International Labour Office (ILO), http://laborsta.ilo.org/applv8/data/icses.html.

11. The income of the TCP can be qualified in three groups: Group I – average income is 17 times the average salary in Cuba (600 unconvertible Cuban pesos – CUP); Group II – average income is 2.7 times the average salary in Cuba; and Group III (the biggest) – average income is six times the average income in Cuba.

12. The legislation only requires that the TCP show the general totals of monthly income and expenses, and receipt of 35% of the used input.

13. “Ejercen el trabajo por cuenta propia más de 483 mil 300 cubanos.”

14. ILO, Informal Sector (National Definition). See also Tokman, “Informalidad en América Latina.”

15. See ILO, Employment, Incomes and Equality.

16. Todaro, Economic Development, 253.

17. De Soto, The Other Path, 14.

18. “Ejercen trabajo por cuenta propia mas de 483 mil 300 cubanos.”

19. See Association of Authors, “Un nuevo acercamiento”; Palenzuela and Sacchetti, “El trabajo por cuenta propia en Cuba”; and Ritter and Henken, Entrepreneurial Cuba.

20. Neuwirth, “Global Bazaar,” 56–63.

21. Bejerano, “Intervention of the General Controller.”

22. Kornai, The Socialist System; and Portes and Borocz, “The Informal Sector.”

23. Mulet, “El sector privado en Cuba.”

24. CEPAL, Perspectivas económicas de América Latina 2013, 123.

25. Eleven per cent of the approved activities for self-employment are productive; 8% of them are related to food production.

26. Aldunate and Córdova, Formulación de programas; González, La Economía Sumergida en Cuba; and Association of Authors, “Un nuevo acercamiento a la economía sumergida,” 1–24.

27. These were Havana, Pinar del Río, Holguín, Villa Clara and Camagüey (provinces in which the established producers are concentrated).

28. They started in 1993 and 1997 with the extension of self-employment in the country, which shows a consolidation of shoe production.

29. Association of Authors, “Tecnología del Calzado.”

30. Díaz Castañón, Ideología y Revolución.

31. “First Regular Session.”

32. According to the Cuban Ministry of Work and Social Security. Report of the Institute of Economic Research, Habana, 2002.

33. For instance, in Arte en la Rampa, in 2013, shoes worth 110,000 CUC (Cuban Convertible Peso) were reportedly sold.

34. The Association gathers the main creators in the country. It is a voluntary and selective affiliation organisation; its members must have knowledge and command of techniques for the development of handicrafts.

35. This figure is an estimate, considering that 35% of registered TCP are producers (723), who employ between eight and 10 workers, 1342 are vendors employing between two and three workers and about 300 producers are associated to the FCBC (who are not included in the official statistics of the TCP and for whom there are no official statistics). There are also cobblers and producers of raw materials such as leather.

36. An estimate starting from the value of production minus intermediate consumption (material consumption and consumption by third parties).

37. The estimation starts from the amount of declared days worked (226) multiplied by the daily production (50 pairs) and the number of licensed producers (60% of the total).

38. We were able to confirm that the workshops using more manpower are located in small towns or towns far from the provincial capitals, where there are fewer sources of employment and less demand related to income or salaries.

39. There are subjects within the trade school such as Shoemaking Technology and Saddlery, Machinery used in the Shoe Industry and Saddlery, Modelling and Manufacture of Shoes, and Standardization and Quality.

40. To reach this value we took into consideration that, in order to reach the daily production of 50 pairs of shoes, a producer works roughly 226 days. With the cost of raw material representing 30% of the sale price, we took as reference a minimum price of US$6 per pair. We also overlooked the 50% in taxes on raw income (percentage established by ONAT) and the expenses incurred in the operations.

41. See De Mel et al., Who are the Microenterprise Owners?

42. Resolution 298, “Normas para los trabajadores por cuenta propia,” Annex 2.

43. The cost of production of leather in Cuba, with adequate husbandry of cattle production, may be less than 30% of the cost of imported hides. Yet the rates of balance of hide production tend to decrease when analysed individually.

44. The most commonly used tannin in Cuba is mangrove tree skin, whose use is prohibited by law, given its natural value in protecting marine ecosystems.

45. Apart from having a finer flower, chrome reduces the time of treatment to just a few days, while vegetal tannin can need up to two years.

46. Only the investment in a tannery is taken as reference.

47. See “Constitution of the Republic of Cuba.”

48. “First Regular Session.”

49. See Ortegón, Guía para el diseño y gestión de políticas públicas, 151.

50. See Coase, “El problema del coste social.”

51. See Tokman, “Informalidad en América Latina,” 25.

52. Ibid., 26.

53. In order to carry out the job of ‘hired worker’ they are required to be registered, starting with a written application from the worker they work with. See “Resolution 41,” Article 6.

54. Resolution 41, “Reglamento del ejercicio del Trabajo por Cuenta Propia,” Article 12.

55. See Tokman, “Informalidad en América Latina,” 26.

56. See Resolution 41, “Reglamento del ejercicio del Trabajo por Cuenta Propia,” Article 3.

57. See Resolution 41, “Reglamento del ejercicio del Trabajo por Cuenta Propia,” Article 8.

58. Self-employed workers may commercialise their products and services with state entities, within the established financial limits. For this they require a document (bill) in which the activity is credited and the amount charged is included. “Resolution 41,” Article 7.

59. See Resolution 41, “Reglamento del ejercicio del Trabajo por Cuenta Propia,” Article 7.

60. The current legislation comprises self-employed workers as natural persons, which limits their interrelation with other forms of production and their access to national and foreign investment.

61. See North, Institutional Change and American Economic Growth, 10.

62. See Tokman, “Informalidad en América Latina,” 31.