This is a new work that I recently sended to the Ideas for Cuba contest. This is the second of series of 5 articles.
Proposals for solutions
1-Guarantee the legislative conditions for the settlement of the free market, guiding the economic role of the State towards the provision of infrastructure and education
There are many legislative conditions required by the private sector of Cuba to truly boost the national economy. In the first place, it is essential to adequately define certain types of business entity that go beyond the limited self-employed sector.
The individual company is one in which the owner is a single individual, who benefits from the profits of the productive activity of his company, but also assumes the losses incurred even at the expense of his assets. They are very similar to the self-employed sector only that the latter pays taxes according to assets and benefits, while individual companies only do so according to the benefits. To give an example in particular, the hostels would only pay taxes according to the income they report and not depending on the number of rooms they rent. In this way they receive more incentives to grow and contribute to the development of tourism and the economy in general. Similar cases can be extrapolated to other sectors of self-employment that would grow much more than presenting the structure of an authentic individual company.
The individual company is the simplest way to establish a business and are usually small or family businesses. Its main disadvantage is that the owner of the company has unlimited liability since he is responsible for all the debts that accumulate because he has no isolated control over the business and it is more difficult to receive capital according to this risk condition. That is why it is necessary to also accept the collective societies, limited and limited liability, as well as corporations.
Collective societies are similar to individual companies, only that they have more than one owner. Each of the partners in this case is linked to the formation of the business through work and not capital. The creditors can try to collect the debts of the personal assets of the partners. It has greater possibilities of
growth that the individual company because, having several members in its composition, reduces the individual risk of each of these.
Limited liability companies are a type of commercial company in which the liability is limited to the capital contributed and, therefore, in the event that debts are incurred, they do not respond with the personal assets of the members. In this way, existing independent legal structures owners can separate their personal assets from the debts of the company. By presenting this advantage, limited liability companies have the possibility to enter directly into certain sectors with high barriers to entry, unlike individual companies and collective societies.
Limited partnerships are an intermediate case between collective societies and limited liability companies. It is a company of a personal nature that is characterized by the coexistence of collective partners, who unlimitedly respond to social debts and participate in the management of the company, and limited partners who do not participate in the management and whose responsibility is limited to capital committed to the company. In this case, having owners who provide work and others who contribute capital, is a hybrid conformation that could host many businesses in the Cuban private sector.
Corporations, also known as corporations, are the most significant form of production in the private sector. Its owners (also known as shareholders) fluctuate through the purchase and sale of shares in a highly organized share exchange system. If the corporation generates a benefit, it is paid to the shareholders directly on the basis of their participation in the company according to their contributions. In a listed company, a shareholder can trade its shares in the open market through dynamic purchases and sales. This open market is called a stock exchange.
Stock exchanges allow negotiation and exchange between companies that seek financing, and savers (people or organizations), which seek to obtain a return on their resources. Stock exchanges play a fundamental role in economic development, since they facilitate transactions and channel resources so that a better allocation of resources is feasible, directing savings towards public investment. The vast majority of countries in the world have stock exchanges that serve as the nucleus of economic growth and the role of the private sector in society. Cuba should have a stock exchange for the adequate growth of the private sector.
The structuring of these business forms would allow an exponential growth of the private sector in the country. However, there would be the limitation of the existence of state enterprises that, despite being more inefficient, would remain at the top of the national economic domain because they have the support of political faculties that, to avoid the bankruptcy of state monopolies, they would use regulatory and fiscal instruments that would stifle the emergence of new actors in the private sector. The answer lies in privatization.
Privatization is an existing mechanism in the economy through which the State makes an industry or an activity stop being part of the public sphere, being transferred or transferred by the government to private companies or organizations. Thanks to this economic phenomenon the individual and collective agents of the private spectrum of a country can participate in the control and ownership of different industries and sectors of the economic life of the nation, improving the competitive level of the same and the range of companies present in the market. At the same time it supposes the reduction of power that the State has in the economy, being able to focus more centrally on social programs and public services such as health and education, which should not be privatized.
Privatization would be the answer to the declining productivity of state enterprises, but its functionality is limited with respect to the market concentration that exists in the Cuban economy. There is a risk of state monopolies transformed into private monopolies. The solution to this conflict is to increase the integration of the Cuban economy with the international economy through the liberalization of trade flows with a particular emphasis on foreign investment.
Free foreign investment would make it possible to combat the negative impact of the possible emergence of capitalist monopolies after the privatizations carried out, since new participants would arrive to reduce the lack of competitive capabilities in the most concentrated markets. The more monopolized it is A certain sector encourages the opening of subsidiaries by foreign companies, reducing market concentration in the long term.
The implementation of these measures would provide a considerable growth of the Cuban economy due to the rise of private sector actors in production and competitiveness among them, generating a labor market with greater payment capabilities for workers. Each of these faculties would nurture the State’s resources through the collection of taxes (a system carried out in the rest of the world), which would give it the capacity to comply with social programs and public health and education services.
Then the question arises: Where should the growth of public spending be directed? It is important to make visible the conditions of Cuban university infrastructure and education.
The efficient provision of infrastructure services is one of the most important aspects of development policies. For most specialists, the absence of an adequate infrastructure, as well as the inefficient provision of infrastructure services, constitute major obstacles for the effective implementation of development policies and obtaining adequate economic growth rates.
The transport infrastructure is identified, related to the networks and transport routes both terrestrial, maritime and air. Then, the infrastructure related to energy networks, such as home electricity networks. There is also the hydraulic infrastructure linked to drinking water networks. And there is also the reference to telecommunications networks: fixed telephony, internet networks and mobile telephony networks.
For various reasons, countries need to expand and modernize their basic infrastructure in accordance with international technological standards, achieve maximum levels of coverage of the national territory and effectively meet the needs of infrastructure services of economic agents and individuals. On the other hand, the adequate availability of infrastructure works, as well as the efficient provision of related services, would help the Cuban private sector to develop competitive advantages and achieve a greater degree of productive specialization.
Likewise, the improvement of infrastructure networks would also be a central element in the integration of Cuba’s economic and territorial system. In this sense, such networks would constitute a backbone of the economic structure of the private sector in the country when infrastructure works were built by private companies that are authorized through a bidding process; which is that the State would publicly disclose the initiatives (roads, bridges, etc.), request offers that satisfy it, evaluate these offers and select one of them. This system would be established as an authentic public-private collaboration.
But something should not be overlooked and it is reversing the drop in enrollment in Cuban universities. Although mass media do not disseminate it openly, higher education in Cuba is going through a decadent situation. As reflected in the data from the 2015 Cuban Statistics Yearbook published by the National Office of Statistics and Information, the number of university enrollees between 2007 and 2015 fell by 77.7%.
The opportunity of education in general, and higher education in particular, to consolidate growth and subsequent development, is not alien to any country. As the private sector consolidates, the need for qualified workers for all kinds of functions with greater application of technical knowledge increases.
Public spending should also be geared towards improving the resources available to universities. In this endeavor, efforts should be made so that society as a whole would be able to assimilate the increasingly changing concepts and methods that are being considered in current societies. Therefore, and in accordance with this position, it is not enough to ensure access to university education, although this already constitutes a desirable end in itself, but, in addition, the knowledge learned must correspond to the existing needs and serve to guarantee the integral development of the nation.
The private sector would be nourished by the advantages of having productive capacities that apply a higher level of knowledge on the part of workers. These growth conditions would nourish the government’s resources through the collection of taxes in order to focus once more on the continuous improvement of higher education in a genuine virtuous cycle of development.