The Gray Zone of Cuban Private Entrepreneurship Case Study on Cuentapropismo in Havana and Legal and Illegal Ways to Deal With Strict Regulation

(1)

The Gray Zone of Cuban Private Entrepreneurship

Case Study on Cuentapropismo in Havana and Legal

and Illegal Ways to Deal With Strict Regulation

CEDLA Master’s Programme

Thesis MA Latin American Studies Name: F.J.R. (Floris) van Dort Student number: 10153292 E-mail: FJRvanDort@gmail.com

Supervisor: Prof. Dr. B. B. (Barbara) Hogenboom Second reader: Dr. J. L. (Annelou) Ypeij

Date of submission: November 30, 2018

(2)

(3)

i

The Gray Zone of Cuban Private Entrepreneurship

The picture on the front page shows a private entrepreneur (cuentapropista) selling tomatoes in the shade of a housing block in Havana. Around the corner

is a fading portrait of revolutionary hero Che Guevara. (picture taken by author)

(4)

(5)

iii

Abstract: Despite liberalizations, Cuban private entrepreneurship (cuentapropismo) remains subjected

to strict regulation aimed at limiting its significance within the Cuban economy. In this thesis, I argue that cuentapropismo is of increasing importance for the Cuban economy and closely tied to a growing informal sector. My key interest concerns how entrepreneurs perceive and deal with strict regulation imposed on the private sector, which received limited attention in academic literature. In a case study consisting of 29 in-depth interviews and dozens informal conversations with entrepreneurs in Havana, supplemented by 14 interviews with experts, I find that cuentapropismo is encapsulated by a gray zone of intertwined legality and illegality. Most prevalent illegalities are tax evasion, bribery and unauthorized employment. Legal practices include creative interpretation and circumvention of requirements and restrictions. These subversions are the result of both infeasibility to abide by the regulation and disagreement with it. A perceived fine line of unwritten rules and rumors encourage cuentapropistas to keep a low profile regarding their successes, further fueling this shady reality. While the strict regulation is perceived by cuentapropistas and experts as negative for Cuba’s development, some cuentapropistas state to personally benefit from the limited competition that this system facilitates. In sum, I find a substantial gray zone surrounding cuentapropismo with implications for the broader Cuban economy and society.

Keywords: Cuban economy, cuentapropismo, private entrepreneurship, strict regulation, economic

illegalities, informal economy

Resumen: A pesar de la liberalización, el emprendimiento privado cubano (cuentapropismo) se

mantiene sujeto a estrictas regulaciones dirigidas a limitar su importancia dentro de la economía cubana. En esta tesis, sostengo que el cuentapropismo está incrementando su importancia en la economía y está estrechamente vinculado a un sector informal en crecimiento. Mi interés principal es analizar cómo los emprendedores perciben y lidian con regulaciones estrictas impuestas al sector privado, lo que ha recibido limitada atención en la literatura académica. En un estudio de caso que consta de 29 entrevistas en profundidad y docenas de conversaciones informales con emprendedores de La Habana, complementadas con 14 entrevistas con expertos, encuentro que el cuentapropismo está rodeado por una zona gris de legalidad e ilegalidad entrelazadas. Las ilegalidades más encontradas son la evasión de impuestos, los sobornos y el empleo no autorizado. Las prácticas legales incluyen interpretaciones creativas y la elusión de requisitos y restricciones. Estas acciones son el resultado de la imposibilidad de cumplir con la regulación y del desacuerdo con ella. Una percibida línea delgada de reglas no escritas y rumores hace que los cuentapropistas mantengan un perfil bajo respecto de sus éxitos, lo que se suma a una realidad claroscura. Si bien la regulación estricta es percibida como negativa para el desarrollo de Cuba por los cuentapropistas y los expertos, algunos cuentapropistas declaran beneficiarse personalmente de la limitada competencia en la que resulta. En definitiva, mis hallazgos revelan una sustancial zona gris alrededor del cuentapropismo con implicaciones para la economía y sociedad cubana en general.

Palabras clave: economía cubana, cuentapropismo, emprendimiento privado, regulación estricta,

(6)

(7)

v

Acknowledgements

I want to express my gratitude to the following people who were involved in this thesis process.

Pablo Eppelin, Hilde van den Heuvel and Pamela Kalkman motivated me in the early stages of this process to pursue my topic. I thank Prof. Dr. Dirk Kruijt of the University of Utrecht for his advice on how to conduct research in Cuba and for introducing me to the Facultad Latinoamericana de Ciencias Sociales (FLACSO) at the University of Havana. Without his help the process would most probably have

been completely different. I thank Prof. Dr. Bert Hoffmann of the German Institute of Global and Area Studies (GIGA) for introducing me to the Cuban scholars that I consulted for this thesis.

I am grateful for the help of all the employees of FLACSO Cuba, especially Dr. Reynaldo Miguel Jiménez Guethón, for making me feel home at the faculty and introducing me to all the staff during the

Labor Day Parade, on May 1st_{, 2018. José Jasán Nieves of Cuban multimedia platform}_{el Toque for}

introducing me to civil society organization CubaEmprende. The employees of Cuba’s tax authority

Oficina Nacional de Administración Tributaria (ONAT) for providing me relevant juridical and regulatory

documents and the staff of the Centro de Estudios de la Economía Cubana (CEEC) for providing me useful

books and journals.

I am thankful for the advice of Dr. Annelou Ypeij and Dr. Fabio de Castro of the Centre for Latin American Research and Documentation (CEDLA) at the University of Amsterdam regarding fieldwork, and for their guidance in the thesis writing process. Dr. Julienne Weegels (CEDLA) for providing feedback on a draft of the methodological chapter. All three helped me to conduct a better research and critically reflect on it.

I am indebted to the many Cubans who provided me information, from the informal conversations in the street to the hours-long interviews with experts and cuentapropistas. So many of you took the time to answer my -at times inconvenient- questions without any self-interest and not seldom without risk. I am very grateful for your time and your trust in me.

Finally, a special thanks to Prof. Dr. Barbara Hogenboom (CEDLA) for the useful comments, the pleasant supervision process and the confidence that even with the alleged obstacles that I would face, I could pursue this topic. For all the practical and academic support during my stay in Cuba I am very grateful for the dedicated scientists and utmost friendly Dr. Tania Caram León and Mr. Leonardo Arredondo Cervantes (FLACSO), who gave me all the space to conduct my own research, and were always available to help me.

Muchísimas gracias a todos ustedes y un abrazo fuerte.

Amsterdam, November 30, 2018, Floris van Dort

(8)

(9)

vii

1. Introduction

1.1. The gray zone of Cuban private entrepreneurship

Having been insignificant for over half a century, the private sector in the Cuban economy rose strongly over the last years. No longer obliged to work for the state, hundreds of thousands of Cubans decided to become cuentapropista: ‘worker for their own account’. Under Cuban regulation this group is

defined as “workers, who whether or not owners of working tools or equipment, are not subject to a contract with a corporate body and have no salary” (Oficina Nacional de Estadísticas e Información, 2018a: 6). In spite of their increasing importance within the changing economy, these private entrepreneurs have to abide by many strict rules that aim to limit their activities, economic importance, and wealth accumulation. In this thesis I build on and contribute to the academic literature about the Cuban private sector by focusing on how these new entrepreneurs perceive and deal with the abundance of strict rules that are imposed on them. Based on 29 in-depth interviews and dozens more informal conversations with cuentapropistas in Havana, I encounter strong entanglements of formal private entrepreneurship with the informal economy and economic illegalities. I also find that many of these cuentapropistas have legal and creative solutions to deal with the rules, and try to keep a low profile regarding their success and wealth. While almost all respondents argue that policies that constrain cuentapropismo are negative for the development of the country, many state to personally benefit from the strict rules. Findings in this ‘gray zone’ surrounding Cuban private entrepreneurship are supplemented by 14 in-depth interviews with academics, government advisers and representatives of civil society organizations.

1.2. Literature gap, research question and relevance

In 2010 a major change in Cuban economic policy was implemented, opening up the private sector which had been marginalized since the early years of the Cuban revolution in 1959. In just seven years, the number of cuentapropistas grew from 156,000 (3% of the workforce) to 583,200 in 2017, now making up for 13% of the Cuban workforce (ONEI, 2018a: 11)._{. This liberalization remains limited to} mainly low-skilled professions, keeping high-educated jobs and everything related to defense, education and health-care in the public sector. The most privately practiced jobs are the sale of food, transport of persons and rental of houses (Granma, 2018a). Working as cuentapropista is popular because the incomes are often multiple times higher than in the public sector, where the average wage is 30 USD per month (ONEI, 2018a; Mulet Concepción, 2016: 1716; Núñez Sarmiento, 2014: 85). Obstacles for cuentapropistas include the high price of licenses that enable someone to work as entrepreneur, high taxes and limitations that forbid the selling of products (Ritter and Henken, 2015: 10 & 13; Mulet Concepción, 2016: 1716; Núñez Sarmiento, 2014: 82; Mesa-Lago, et al., 2018: 191), restrictions on hiring employees, prohibitions on importing and exporting (Bye, 2016: 1699), strict requirements for acquiring loans (Arredondo Cervantes, 2017: 7; Feinberg, 2013: 27) and exposure to arbitrary forms of corruption committed by public controllers and local governments (Bye, 2016: 1700). In this thesis I refer to this combination as ‘strict regulation’. While scholars agree on the challenging environment for entrepreneurs, there is little in-depth knowledge about how the growing number of cuentapropistas deal with the strict rules and what their opinions are about them. This leads to the following research question: “How do Cuban cuentapropistas deal with and perceive strict private sector regulation?”.

(12)

2 Connections of cuentapropismo with the informal economy and illegalities are rarely researched in-depth, even though the results of my research indicate those connections to be widespread and of great importance for the functioning of the Cuban economy as a whole. Many of my respondents admit to systematic tax evasion, bribing inspectors or illegally employing workers. Also, creative (and legal) solutions to deal with the strict rules, such as bypassing import-restrictions and being engaged in other activities than authorized, points at a discrepancy between the reality and theory of Cuban cuentapropismo. In addition to what these findings tell us about the 583,200 people directly working as cuentapropista, this also has implications for their families and others working in the growing informal sector. The rise of cuentapropismo went hand in hand with a rise of the inactive part of the working age population which grew by 853,700 people in the period between 2010 and 2017 (now making up for 37,6% of the working age population). This indicates the growth of a huge informal sector, likely to be connected to a great extent with cuentapropismo. As an economist working for the Cuban government stated to me during an interview: “This topic is the big pink elephant in the room. The problem is right in front of us: but we choose to ignore it”. An influential Cuban economist of the University of Havana told me that there is limited academic attention for topics regarding illegalities, the informal economy, and cuentapropismo because those are “taboo”, “connected to political failure” and “dangerous territory to enter for Cuban academics”.

Illegal activity is often practiced in obscurity and hence hard to observe and absent in statistics. Creative solutions to surpass the regulations and opinions about the system are often hard to come by. Existing academic knowledge is limited, and acquiring data about this topic comes with methodological and ethical challenges, which is further complicated by the repressive political system. While the academic studies that touch on the topic point at illegalities and connections to the informal economy, a literature gap remains about how cuentapropistas deal with the strict rules and how they perceive those. By

focusing on this, I aim to shine a light on the gray and shady parts of Cuban cuentapropismo.

1.3. Cuba today: change and continuity

The rise of the private sector since 2010 is one of the key elements of the economic and political change on the island in the last decade. Due to illness, revolutionary leader Fidel Castro (1926-2016) handed over power in 2006 to his younger brother Raúl (1931-), who followed a course of continuity accompanied by economic adjustments. Key were the maintenance of Fidel’s close cooperation with ‘new friend’ Venezuela by extending lucrative oil-deals and a diversification of the economy with a focus on tourism. After a period of rapprochement with the United States (U.S.), Barack Obama was the first U.S. president to set foot on the island in nearly a century when he visited in 2016. In April of 2018, post-revolution born Miguel Díaz-Canel Bermúdez (1960-) replaced Raúl Castro as president of the republic, and in July of that year a draft of a new constitution was approved by the national assembly.

Despite these transformations, key characteristics of the socialist economic and political system are unchanged. Raúl Castro remains the most important figure on the island and still holds formal political and military power as both chairman of the Communist Party (by constitution, higher in hierarchy than the president) and head of the armed forces. The path towards normalization with the U.S. perished after the election of U.S. President Donald Trump, and even though the draft of the new constitution recognizes private property, it more firmly than its 1976-predecessor asserts the irreversibility of the socialist revolution, the state’s leading role in the economy and the indivisible

(13)

3 power of the Cuban Communist Party (Proyecto de Constitución de la República de Cuba, 2018: article 3 and 5).

1.4. Structure of thesis

In the following chapter I introduce the main concepts and theories used in this thesis. A critical discussion of the use of the main concepts in this branch of literature (formal, informal and criminal economy) is followed by a justification of my own conceptual approach (2.2 & 2.3). The presentation of the existing academic literature on the Cuban private sector shows that the way cuentapropistas deal with and perceive strict regulation has not been researched in-depth. Based on literature about similar political economies in socialist states in Eastern Europe in the 1980s, I provide extra theoretical tools for this research (2.4 & 2.5). In chapter 3 I provide a detailed account of the methodology in this thesis, present background information on the obtained data and reflect on the research process. I discuss the selection of cuentapropismo in Havana as case study, the research methods and pay special attention to methodological and ethical choices made in relation to the sensitive nature of the topic and the Cuban context of political repression. In chapter 4 I provide context to the topic by providing a brief (historical) overview of the economy, the rise and relevance of the private sector, and a presentation of key elements in the current regulatory framework. This chapter is based on academic literature, newspaper articles, official statistics, regulatory and juridical documents, and my interviews with experts. In chapter 5 I present empirical findings that directly concern the research question. These are presented in 5 sections: illegal activities in cuentapropismo, connections to the informal economy, legal and creative solutions, preparations for the future, and perceptions about the strict regulation. The main conclusions and answer to my research question are discussed in the final chapter, where I also engage on wider implications for the academic debate and the Cuban economy and society.

(14)

(15)

5

2. Conceptual and theoretical framework

2.1. Introduction

In this chapter I provide the conceptual and theoretical tools for this thesis. Since there is ambiguity in the academic literature about what the for this thesis important concepts formal, informal and criminal economy entail, I start with discussing these concepts. In the following section I show that inconsistency in use of these concepts often leads to confusion (2.2). The strict interpretation that I use in this thesis is justified in the subsequent section (2.3). The second part of this chapter has a more theoretical scope. I give an overview of the few academic studies that touch upon how cuentapropistas deal with strict regulations and perceive those (2.4). Since this body of literature is limited and parallels can be drawn between Cuba’s political economy and those of the USSR and Hungary in the 1980s, I introduce theory about the functioning of the (formal) private and informal sector in those economies in the final section (2.5). This additional literature helps to understand the functioning of the private and informal sector in socialist political economies.

2.2. Formal, informal and criminal economy: the problems of inconsistency

The concept ‘informality’ was first coined in the early 1970s to describe economic actions outside of state control by micro-entrepreneurs in Africa. A report of the International Labour Organization (1972) about Kenya presents the informal sector as “a way of doing things” with characteristics such as: “ease of entry, reliance on indigenous resources, family ownership, small scale operations, labor intensive, skills acquired outside of the formal sector and unregulated and competitive markets” (International Labour Organization: 1972: 4). These activities are according to the report often ignored and rarely supported by the government. Hart (1973) writes about similar practices in Ghana, but adds circumvention of legislation by employers and workers in the formal sector to his understanding of informal activity. For Hart, the criterion for informality is whether people work on a permanent and regular basis for fixed rewards (1973: 68). He defends the people engaged in informal activities: “Denied success by the formal opportunity structure, these members of the urban sub-proletariat seek informal means of increasing their incomes” (1973: 67). The International Labour Organization report and Hart give many examples of what they regard as informal activity, provide an explanation for its occurrence (a lack of opportunities in the formal sector) but do not give clear definitions.

A demarked –and widely cited- understanding of the informal economy is provided by Castells and Portes (1989), who make a categorization centered around the licit (legal) character of the production and distribution on one hand and the product or service on the other. The process and the nature of the final product or service lead to the qualification ‘formal economy’ (production and distribution and the nature of the product or service are licit), ‘informal economy’ (licit product or service that is produced and distributed in an illicit way), and ‘criminal economy’ (illicit production, distribution and nature of product or service).1

Table 1: Classic categorization

Production/distribution Product/service

Licit Licit Formal economy

Illicit Licit Informal economy

Illicit Illicit Criminal economy

Based on Castells and Portes (1989: 14)

1_{Non-monetized activity and household chores at the home or among family and neighbors are often excluded from this approach and categorized as ‘household}

(16)

6 In a recent literature review on the informal economy Bromley and Wilson (2018: 6) argue that informality is often regarded as “all non-criminal and non-peasant income-generating activities and jobs that are not part of the formal economy. Informal enterprises and hiring practices may break official rules, lack permits, and avoid taxes, but they are not obviously criminal because they provide income opportunities as well as goods and services that are necessary and/or desired by the public”. While this definition seems clear and in line with the classic categorization (apart from the exclusion of peasants), the additional explanation is confusing because criminal activities can have income opportunities and a demand from the public as well, and what is ‘obviously criminal’ seems in this way arbitrary to determine. A discussion of Ritter (2006) about the formal, ‘underground’ (a concept similar to informality, see section 2.3) and criminal economy in Cuba shows to what problems inconsistency leads when these concepts are allocated to practices in reality. Ritter regards a mother buying powdered milk for her children on the black market as a sign of the underground but not of the criminal economy, while a woman selling spaghetti that is “obviously stolen from somewhere in the distribution system” as both underground and criminal economy (2006: 5). This is remarkable because Ritter’s definition of

‘criminal economy’ is in line with the classic one of Castells and Portes: “economic activities that produce illegal goods and services in clandestine circumstances outside the regulatory and fiscal purview

of the state” (Ritter, 2006: 4). With the distinction of milk and spaghetti Ritter seems to include ‘stealing’ or moral justifications as criteria, which deviates from his own definition. Furthermore, one can ask what the origin of the powdered milk is and what difference it makes that the woman feeds her children with it, perhaps revenues from the spaghetti-sale are used to feed a child as well. This example shows that inconsistency and perhaps (implicit) aims to justify actions can lead to confusion with the conceptualization. Fernandez-Kelly (2006: 3) rightfully points out that “without formal laws defining the relationship between employers and workers, the informal economy cannot exist. Put differently, formality breeds informality”. Hence, what is formal should be leading for what we regard as informal (or underground) and all activity that is against the law is illegal, no matter how well-intentioned those activities might be. What is considered as criminal economy should be conceptualized according to the same logic based on clear criteria. As Adam Smith already showed in 1776 in his famous The Wealth of Nations, these concepts and qualifications do not per se imply moral (dis)approval:

“The smuggler, though no doubt highly blamable for violating the laws of his country, is frequently incapable of violating those of natural justice, and would have been, in every respect, an excellent citizen, had not the laws of this country made that a crime which nature never meant to be so. In those corrupted governments where there is at least a general suspicion of much unnecessary expense, and great misapplication of the public revenue, the laws which guard it are little respected. Not many people are scrupulous about smuggling when, without perjury, they can find any easy and safe opportunity of doing so” (Smith, 1776: 522).

One could read in this a justification or even moral approval of smuggling by Smith, but he does not deny the fact that violating the law is illegal which makes the violator a smuggler. Just as Wilson and Bromley (2018) and Ritter (2006) I base the conceptualization in this thesis on Castells and Portes (1989), but I suggest to apply the categories consistently. Since what is formal, informal and criminal economy is based on what is formal and legal, the following section focusses on the Cuban context.

(17)

7

2.3. Conceptualization for the Cuban context

Compared to capitalist developing economies where the concepts formal, informal and criminal economy are often applied, socialist political economies as the Cuban are often approached differently. The state’s aspiration to control all facets of the economy in combination with a strict legal framework makes that the discussion about the concepts in socialist states has been slightly different from the one that is mainly applied to capitalist states. Ritter and Henken (2015: 34) note that in Latin America informality “commonly serves to strengthen the hand of the dominant class and to weaken labor’s organization, while under state socialism informality is carried out by the workers themselves in order to win

a greater return on their output than is common under employment in the poorly paid state jobs of the official first economy” (2015: 39). Mulet Concepción (2016: 1716) points out that Cuban cuentapropistas and informal entrepreneurs differ from their counterparts in the rest of the world because they are far better educated and have incomes higher than in the formal public sector. Because of the different character of the socialist political economy scholars have often used different concepts to describe activities outside of the regulated formal economy.

In a classic communist or socialist economy (nearly) all the production and services are public (the state), which is referred to as the ‘first economy’. The ‘second economy’ comprises all activities, both legal and illegal, by which the population acquires income not as employee in the socialist/state sector (e.g. Gábor, 1989: 339; Portes and Böröcz, 1988: 19; Feldbrugge, 1989: 304). The illegal part of the second economy is often divided into ‘underground’ and ‘submerged’ or ‘criminal’ economy, which has similarities to the division into informal and criminal economy in the classic categorization of Castells and Portes.2_{Similar to what we saw in the previous section, the concepts used to describe} categories of the socialist economies have been used confusingly. In one of the few in-depth studies about the connections of Cuban cuentapropismo with the informal economy and illegalities, Mulet Concepción (2016: 1716) argues that the ‘informal sector’ and the ‘submerged economy’ “should not be confused” because the latter includes activities that produce or sell goods and services that are “by nature illegal”. Here she seems to refer to submerged economy in a way similar to ‘criminal economy’ in the classic categorization, which is characterized by both an illicit production, distribution and product or service. A few sentences later though, Mulet Concepción refers to the submerged economy as “a safety valve to correct the rigors of the system and the result of the unauthorized interaction of the state with market forces”, which seems to fit ‘informal economy’ in the classic categorization. Mulet Concepción argues that it is “difficult to separate” the concepts of informal economy and submerged economy in Cuba: “Although manufacturing and services approved for self-employment qualify as legal activities from the ‘final product’ point of view, they often turn out to be illegal activities from the point of view of the production process” (2016: 1716). Ritter and Henken (2015: 205) provide four categories of economic activities in the Cuban context: the household, formal, underground and criminal economy. While the first two categories are similar to the classic categorization of Castells and Portes (1989), the last two require further examination and are presented in Table 2.

2_{The same terms have been used differently. For example, Feige (1989: 1) refers to the underground economy as “economic activities and incomes derived from}

them that circumvent or otherwise elude government regulation, taxation, or observation”, which also includes activities that Henken (2006) -who also uses the term underground economy- refers to as criminal economy.

(18)

8

Table 2: Economic activities in Cuba’s underground and criminal economy according to Ritter and Henken (2015)

Character and examples

Underground economy

Unauthorized, unregulated, untaxed and illegal activity

1. “Legitimate Underground Economic Activities” Legal goods and services outside the regulatory and tax regimes of the state

2. Within registered self-employment activities Unauthorized sales and unauthorized dollar activities 3. Underground activities operating within state firms Private payments to state employees, under-the-counter sales,

and illicit private enterprises

4. Black markets Under-the-counter sales in state retail outlets, and sales of products outside the state system

Criminal economy

Unlawful activities, carried out illicitly

Theft, sale of stolen goods, sale of jobs, personal use of public property, drugs, prostitution, etc.

Source: Ritter and Henken (2015: 205)

It is unclear how the understanding of underground economy (“unauthorized, unregulated, untaxed and illegal activities”) differs from the definition of criminal economy (“unlawful activity carried out illicitly”). In defense of Ritter and Henken one could argue that criminal economy refers to the illicit character of the production, distribution and the nature of the product or service, that we know from the classic categorization on which it seems to be based (the examples of drugs and prostitution indicate this). What remains unclear is what the difference is between ‘under-the-counter-sales’ at state outlets (underground economy) and ‘sale of stolen goods’ (criminal economy). Both activities have an illicit distribution and a licit product. It also unclear why ‘theft’ and ‘sale of jobs’ are allocated as criminal economy. It seems that Ritter and Henken sometimes allocate illegal activity that does not meet requirements of underground economy to the category criminal economy, which I consider confusing. Clear conceptualization should lead to the labeling of activities; allocation to a category should not be driven by the misfit in another one.

My conceptualization and labeling of activities in this thesis is based on a strict interpretation of the classic categorization of Castells and Portes (1989) in which the legality of the production, distribution and the nature of the product or service are central. This leads to the following conceptualization: a) formal economy: legal products and services which are legally produced or acquired and distributed, b) informal economy: legal products or services, illegally produced or acquired and distributed, and c) criminal economy: illegal products or services, illegally produced or acquired and distributed. I regard all activity that is against the law as illegal and in order not to unnecessarily complicate the matter, outside of this conceptual and theoretical chapter I will not refer to concepts as ‘second, ‘underground’ and ‘submerged’ economy.

Table 3: Strict interpretation of classic categorization Castells and Portes with examples for Cuban context

Examples in Cuban context Legally produced or acquired and distributed,

legal nature of product/service

Formal economy Licensed private restaurant or taxi (cuentapropismo) Illegally produced or acquired and distributed,

legal nature of product/service

Informal economy Black market, unlicensed taxi Illegally produced or acquired and distributed,

illegal nature of product/service

Criminal economy Drugs, prostitution

Based on Castells and Portes (1989)

Cuentapropismo is part of the formal economy because entrepreneurs have authorization and licenses to legally produce or acquire and distribute legal products or services. This does not mean that individuals who are cuentapropista cannot be engaged in illegal activities and that they cannot be connected to or even be a part of the informal economy. I regard illegal production or acquisition and

(19)

9 distribution of products or services by cuentapropistas that are by nature legal as part of the informal economy. Examples are the sale of rum bought on the black market in a cafeteria that is not licensed to sell alcohol, or massages given by someone merely licensed in cleaning. Even though these activities can be carried out by individuals that are licensed cuentapropistas, they meet the requirements of the informal economy.

My strict interpretation of the concepts makes that not all illegal activity of cuentapropistas can be categorized as formal, informal or criminal economy. Illegal actions that are not directly touching the legal character of the production or acquisition and distribution and nature of a product or service do not fit the categories. Examples of this related to cuentapropismo are bribing inspectors and tax evasion. Illegal activities that do touch on the legality of production, but not the distribution of a product or service (and vice versa) are also not considered as one of the categories. Examples of this related to cuentapropismo are the sale in private restaurants of vegetables acquired on the black market or the sale of legally purchased beer in a cafeteria that is not licensed to sell alcohol. These actions do not meet the requirements to be labelled formal, informal or criminal economy and are merely considered as illegalities.

2.4. Cuentapropistas and strict regulation in the academic literature

There is consensus in the academic literature that cuentapropismo is very strictly regulated, that there are connections with the informal economy and that illegalities widely occur: “Without question, Cuban entrepreneurs face many constraints”, argues Feinberg (2013: 27). Bye (2016: 1700) argues that a “jungle of legal provisions” makes that many entrepreneurs have to conduct illegal activities in order to

prosper or even to survive. Ritter and Henken (2015: 10) and Mulet Concepción (2016: 1714) argue that the formal and informal economy are intertwined and that cuentapropistas often surpass strict limitations, evade taxes and grow their businesses outside of the regulatory framework. Heavy taxation (Mesa-Lago, et al., 2018: 191), strict requirements for acquiring loans (Arredondo Cervantes, 2017: 17; Feinberg, 2013: 27), prohibitions on importing and exporting (Torres Pérez, 2016: 1690), and exposure to arbitrariness and corruption of public controllers and local governments (Bye, 2016: 1700) and the frequent inspections (Mesa-Lago et al., 2018: 291) make that doing private business in Cuba comes with many challenges. According to these studies, the strict rules make that “much microenterprise is so costly that it becomes difficult for cuentapropistas to survive without occasionally going outside the law or into complete clandestinely” (Ritter and Henken, 2015: 13), and that “most cuentapropistas try to conceal the real dimension of their operations” (Mulet Concepción, 2016: 1714). In this thesis I refer to the above mentioned combination of requirements and restrictions as ‘strict regulation’.

The most mentioned violation in the academic literature on cuentapropismo is the evasion and sub declaration of taxes. “Tax evasion and sub declaration is the rule, rather than the exception”, conclude Sarduy González, Pons Pérez and Traba Muñoz (2015: 95) in their study on tax evasion of cuentapropistas in Havana. Almost all of their respondents argue that the taxes are too high and 56% consider it “necessary” to evade those. According to the respondents there is a low chance of being caught and frequent inspections are not considered a threat. There is a very low morale to pay tax and 41% do not regard paying taxes as a “social duty necessary to finance public goods and service” (2015: 99). According to an earlier study of Pons Pérez (2013: 50), tax payments are the biggest impediments to the survival of private business in Cuba. Feinberg (2013: 30) blames this “widely assumed” underreporting of revenues to the absence of reliable systems to record sales and the incapacity of the

(20)

10 bureaucracy to audit and control tax files. Other violations recurring in the literature are connected to the purchase of materials that cuentapropistas need for their business. Cuentapropistas are not allowed to officially import and export goods, but individuals can bring a limited amount of products for personal use when entering the country from abroad which is a way to bring in consumer and capital goods for private business (Torres Pérez, 2016: 1690; Feinberg, 2013: 27). In March 2018 the first wholesale market opened in Cuba, only accessible for members of cooperatives, which makes that cuentapropistas have to buy their goods in the same state-run shops as everyone else, where there is often scarcity or a limitation on the products for sale per person. To get their products Bye (2016: 1700) argues that cuentapropistas are obliged to buy at the black market. He also argues that that cuentapropistas are not directly dependent on the state for their income, but “still heavily dependent on the discretionary power of and abuse by state employees” and that “the whims” or corruption of public controllers decide whether cuentapropistas survive or not (Bye, 2016: 1700 & 1707). Bye does not accompany these claims by further argumentation or empirical evidence.

The existing academic body points at the strict regulation and suggests that many cuentapropistas are engaged in illegalities. The studies point at tax evasion and provide examples of creative ‘imports’ and connections to the informal economy, but in-depth knowledge how cuentapropistas deal with the strict rules and how they perceive those remains very limited. While I provide a more detailed overview of the regulatory framework for cuentapropistas is provided in section 4.3, in the final section of this conceptual and theoretical chapter I present theory about the (formal) private and informal economy in the USSR and Hungary, which in the 1980s had somehow comparable socialist political economies.

2.5. The private and informal economy in reform socialism

To supplement the few available studies about Cuban cuentapropismo, in this section I present theory about the functioning of the (formal) private and informal economies in Hungary and the USSR in the 1980s. Parallels can be drawn between recent economic reforms and liberalizations of the private sector in Cuba and the political economies of socialist Hungary and the USSR in the 1980s, which are referred to as ‘reform socialism’ (Gonzalez-Corzo and Justo, 2017: 47). Reform socialism entails mainly economic reforms and liberalizations of the private sector, with conservation of absolute political control of the Communist Party, unchanged state ownership of fundamental means of production, and a continuation of bureaucratic centralized planning as principal coordinating mechanism, even though market-oriented mechanisms are introduced in some sectors of the economy (Gonzalez-Corzo and Justo, 2017: 47). Therefore, the emergence of the private sector from the shadows to the center is an important characteristic of this process. To keep this private sector under the state’s control Gonzalez-Corzo and Justo (2017: 48 & 50) argue that “excessive or onerous taxation” is used in combination with legal prohibitions to constantly threaten to private sector with confiscation or nationalization.

Gábor (1989) shows that economies in reform socialism are characterized by the simultaneous presence of two ‘production forms’. The first is the large scale production-type ‘first economy’ which is guided by the state, and the second is the one ‘regulated’ by a market (the laws of supply and demand), operates on a private economic basis and comprises of small-scale production and entrepreneurial units (Gábor, 1989: 358). These two economies are inevitably intertwined, mutually interdependent, but due to their fundamentally different operating principles of a conflicting nature. For the Hungarian case, Gábor argues that the socialist centrally planned economic system is not functioning well: “a shortage

(21)

11 economy”. Throughout the years, the second economy grew, which lead to a spiral in which it gained more and more relevance. A small group of legally authorized and informal entrepreneurs and families monopolized activities and had exceptionally high incomes, which made them best able to weather the state restrictions (by being better able to hide their activities and pay bribes). They could protect their position, which in made the smaller units more vulnerable (Gábor, 1989: 344). Feldbrugge argues that in the USSR legal and illegal economic activity are “inseparably bound up”, and many activities fit the description of “intermediate economy”: an area that contains an element of illegality but does not attract serious government repression (1989: 313). The economy of the USSR in the 1980s can be characterized by three core elements: (1) the existence of a flourishing private market in certain goods and commodities, (2) the institutionalization of corruption and bribery, and (3) the utilization of the front of the first economy for private entrepreneurial activities (Feldbrugge: 1989, 298). For the first element, Feldbrugge shows that the private market is firmly organized and institutionalized, mainly through a network of family and friends that trust each other. The second element, institutionalized corruption, is the large-scale acceptance of bribes by government officials for granting (drivers) licenses, permits to buy cars, or admittances to educational institutions (1989: 322). The third element, the utilization of the first economy for private benefits, is huge. Feldbrugge argues that “taking home of small quantities of goods or tools” from the workplace has taken a universal form. At more substantial level are the theft of building materials by transportation-workers and warehouse personnel that supplement their income by putting aside a part of the store supplies to be sold under the counter (1989: 320). These activities are hard to detect, and “not infrequently tied to a wide network of protection and bribes” involving local police and party-officials. “Most reliable sources agree that theft of socialist (state) property is almost as widespread as state property itself” (1989: 318).

Feldbrugge emphasizes the importance of social networks in illegal activities and the informal economy of the USSR. Members of the (party) elite have access to special facilities for food supply, schooling and medical services and have access to a ‘privilege system’ that reflects the hierarchical structure of the ruling class: “Powerful imagination is not required to grasp that the twin networks of the second economy and of a privileged elite do not lead a whole separate existence” (1989: 332). Feldbrugge hence argues that the major factor of cohesion in the political system of the USSR in the 1980s is not ideological commitment, but the material interests of its members in exploiting positions in the second-economy. Access to advantages supplied by the second economy is an important reward for membership of the party and support for the leaders. Therefore it is irrational for the top-leadership to clamp down on the second economy because that would undermine the very foundation of their own power (1989: 334). This system also leads to hierarchy and elites in the second economy, since (non-elite) competitors in the second economy can be taken out easily due to the elite’s connections with law-enforcement and courts. Concluding, Feldbrugge and Gábor argue that the private and informal economy of the USSR and Hungary “coexists in a curious symbiosis” with the official first economy (1989: 335).

In the first part of this chapter I argued that inconsistent use of concepts has led to confusion in the academic debate. Therefore, my aim in this thesis is to refer consistently to the concepts legality and illegality, and formal, informal and criminal economy. In the second part of this chapter I provided an overview of the few existing academic studies that discuss how cuentapropistas deal with and perceive strict regulation, which I supplemented by theory about the functioning of the private and the informal

(22)

12 economy in ‘reform socialism’ in the USSR and Hungary in the 1980s. Having provided the conceptual and theoretical tools for this research, in the next chapter I will engage on the methodology and data collection.

(23)

13

3. Methodology and data collection

3.1. Introduction

In this chapter I provide a detailed account of the methodology in this research, background information about the obtained data and reflections on the research process. In the previous chapters I showed the academic and social relevance to conduct research about cuentapropismo and strict regulation. The research question that followed from the identified literature gap is: “How do Cuban cuentapropistas deal with and perceive strict private sector regulation?”. I regard a qualitative research design with

an inductive focus most suitable to answer this question. By including the ‘voices’ of Cuban cuentapropistas, who have been largely absent in the current academic discussion, I aim to contribute to new insights about how and why cuentapropistas deal with and perceive the strict regulation. I regard a case study of cuentapropismo as the most effective strategy to acquire data because it allows me to find “circumstances and conditions of an everyday commonplace situation” (Bryman, 2012: 56) and “gives insight into a causal relationship across a larger population of cases” (Gerring, 2007: 86). In the following section, I discuss my motivation to pick cuentapropismo in Havana as case for this thesis (3.2). The main research method is the semi-structured in-depth interview. In section 3.3 I provide a detailed account of the interviews, the characteristics of the respondents and a reflection on the sensitive topic, repression and my own role as researcher. In the final section I introduce the additional research methods that I used to provide this thesis with more context and myself of a better understanding of the topic (3.4).

3.2. Case study on cuentapropismo in Havana

Between April 14th_{and June 26}th_{2018 I conducted a case study on cuentapropismo in Havana. I} selected cuentapropismo in Havana to serve as case for Cuban entrepreneurs for several methodological and practical reasons. The main methodological reason is that Havana is home to many cuentapropistas working in different sectors. While Cuba’s statistical agency, the Oficina Nacional de Estadística e Información (ONEI) does not provide information about the geographical and sectoral

distribution of cuentapropistas, many different types of cuentapropismo are present in Havana. This makes the city highly suitable for researching different cuentapropismo categories and offers a good potential to obtain data. Furthermore, Torres Pérez (2017: 263) argues that cuentapropismo is mainly clustered in major cities, and half of the ‘start-ups’ are in Havana (home to 20% of the population).3

While not provided by ONEI, state-owned newspaper Granma (2018a) published that the most

practiced activities by cuentapropistas are the preparation and sale of food (9.8%), passenger and freight transport (9.7%) and rental of spaces, rooms and houses (6.3%). These types of cuentapropismo categories are widely present and easily noticeable by their promotional signs while walking down the streets of Havana.

Cuba is a highly centralized state and the strict private sector regulation is in Havana almost identical to the rest of the country. In addition, the city is home to many organizations that are of interest for my research: Cuba’s national tax administration, the Oficina Nacional de Administración Tributaria (ONAT) and two civil society organizations concerned with cuentapropismo (CubaEmprende

and InCuba Empresas). Havana has the biggest university of the country, where some scholars work on

(24)

14 topics related to the one of my thesis, and is as the country’s capital home to the ministries and many government advisers. Throughout the full fieldwork period I stayed in Havana and interviewed people and obtained data from all these organizations.

In addition to these methodological reasons to select Havana as sight for the case study, there are several practical reasons for the selection. For conducting academic research in Cuba it is mandatory to get an academic visa, which could only be granted with support from a Cuban university and with having a permanent residency for the full fieldwork period. Additionally, obtaining legal and taxation data and interviewing scholars and government advisers is virtually impossible without official documents (such as the academic visa or a letter from the university) since Cuban public officials ask for those before providing information. On advise of my thesis supervisor, prof. dr. Barbara Hogenboom (CEDLA), I reached out to prof. dr. Dirk Kruijt (University of Utrecht) who introduced me to my local supervisor dr. Tania Caram León of the Facultad Latinoamericana de Ciencias Sociales

(FLACSO) at the University of Havana. This resulted in my enrollment at the University of Havana and acquisition of an academic visa. While I gained access to services of the University of Havana, and several academic meetings were organized for me, in no way its employees have interfered with my research and I did not ask for approval for any activity I conducted.

3.3. Semi-structured in-depth interviews and reflections on sensitivity and

repression

The main research method in this thesis is the semi-structured in-depth interview. I regard this method most suitable for answering the research question, the validity and reliability of the data, and ethical considerations. The method fits the inductive nature of the study to gain knowledge on a topic that has not yet been researched in-depth. Bryman (2012: 12) notes that by using semi-structured interviews “the researcher can keep more of an open mind about the contours of what he or she needs to know about, so that concepts and theories can emerge out of the data”. In advance of the interviews I prepared topics and question to be covered, but the process of the interviews was flexible, which is according to Bryman (2012: 471) characteristic for this method. In this way my research was open for new directions (the semi-structured character) while the topics could be discussed thoroughly (the in-depth character).

I regard the method as most suitable for acquiring reliable data in an ethical way. I consider it important that my research subjects (cuentapropistas) collaborated in the process, because dealing with strict rules could imply illegal actions which are by nature performed in obscurity and hard to detect without collaboration of the respondent. Perceptions are also best gathered if the respondents share their views. While focus groups or surveys could be used to obtain similar types of data, I regard those as less useful due to the sensitive context of the study. The perceived risk for the respondent for negative consequences after admitting illegal activity or critical opinions could be higher if other Cubans are present (e.g. focus group) or if they have to write these down (e.g. survey), which could negatively affect the quality of the data. In both ways I also have less opportunity to build trust with the informant which could also affect their truthfulness. I assume that my positionality also had effect on the respondents and thus the interviews. As Berger (2015: 220) highlights, critical self-evaluation and “acknowledgement and explicit recognition that positionality may affect the research process and outcome” is therefore important. Although statements about these effects remain limited to an educated guess, I regard that being a European student could have had much effect on the answers of

(25)

15 my respondents. As an instructor of CubaEmprende, a project for cuentapropistas, told me: “They know that a Dutch guy most probably does not work for the government” (Rodríguez Lorenzo, interview). Being possibly perceived as less of a threat than a Cuban researcher, I could have obtained more detailed and honest information about illegal activities and critical opinions.

The context of both a sensitive topic and a repressive political situation makes that I did not record the interviews with cuentapropistas and that I treat the data confidentially. This is in line with (internationally) published academic articles on cuentapropismo (e.g. Mesa-Lago, et al., 2018; CISR, 2018; Mulet Concepción, 2016; Hingtgen et al., 2015; Núñez Sarmiento, 2014) and according to advice of my local supervisor dr. Caram León. This is of importance since the information useful for this thesis concerns possible violations of regulation which can lead to penalties with severe consequences.4 A lack of anonymity is thus harmful for both the quality of the data and can severely harm the respondents. Even though I regard one-on-one interviews in which I aim to build trust by stating that I guarantee the respondents’ anonymity as the most valid and reliable method, it certainly is not flawless. The risk for respondents that their statements lead to negative consequences could have affected their truthfulness. I regard this as problematic but inevitable and inherent to the research topic. I assume that if respondents are incomplete in their statements or lying, they are biased towards less openness and less

honesty about illegal practices, rather than making exaggerations of illicit activity. Hence, I assume that

findings about illegalities indicate practices that exist in reality, but could be more widespread or extreme rather than less occurring or moderate. Put simply: a respondent has more incentives to conceal rather than exaggerate illegal activities. While not recording the interviews had advantages for the quality of the data and ethical considerations, there is a disadvantage when it comes to the processing of the data. During the interviews I took notes with pen and paper, which I processed on my laptop right after the interview, which make that I do not have complete transcripts of the interviews and that I could have missed or misinterpreted data.5

Repression, ‘dangerous territory’ and ‘taboo’

More than half of the cuentapropistas I interviewed stated that they violate regulations and many expressed critique on the regulation and said to fear repressive measures, which emphasizes the need for my cautious approach. Some cuentapropistas and experts argued that they experienced serious threats, blackmailing or travel-restrictions as result of their (critical) opinions in the past or because of contact they had with dissidents. Two entrepreneurs told me they had “problems” after journalists from the U.S. published about their violation of regulations, which were far less innocent than violations and expressed in many interviews in this study. One cuentapropista told me that he has fear that “someone might knock on my door”, by which he referred to public officials once they would find about illegalities he commits. He also stated that this fear affects his sleep. In order to protect the respondents, the names of the cuentapropistas are not mentioned in this thesis. The quotes of the experts are provided with their names, they all gave permission for this, although some specific quotes about repression are also presented anonymously.

In one of my interviews, an economist expressed that the topic of cuentapropismo and strict regulation or illegalities is “dangerous territory” which “remains taboo” and researching it can be “bad

4 For example, violating regulations can lead to the loss of a license that is necessary to work in the private sector. Since the average wage in the non-private sector is around 30 CUC/USD per month (ONEI, 2018), losing a license would for most entrepreneurs lead to severe income backlash since the incomes in the private sector are usually much higher. Núñez Sarmiento (2014: 85) finds that cuentapropistas make up to ten to twelve times more than state-employees. All of the respondents in this research also earn more than the state-sector average.

5_{With 4 of the first 5 respondents I had a follow-up meeting to confirm my notes. In all cases the respondents confirmed those, which lead me to –in accordance}

(26)

16 for your career”. Another argued that the topic is the “big pink elephant in the room”. A third economist told me that “the government tried to shut my mouth” because of academic articles that were perceived as too critical. Weinreb (2009: 11) argues that the political context in Cuba makes that social scientists have to make concessions when it comes to the number of informants and ability to conduct interviews: “I had to build trust with informants who realized that I, like anyone they met, could be a government informer, international spy, or reporter, and that a piece of recorded data could be used against them”.

In total I conducted 43 semi-structured in-depth interviews, divided into two groups: cuentapropistas and experts. The interviews with cuentapropistas proved most important for the development of my research because they provide insight in how entrepreneurs deal with the strict rules and how they perceive those. The expert-interviews enable me to provide these results with extra context and interpretation.

Semi-structured in-depth interviews with cuentapropistas

I conducted 29 semi-structured in-depth interviews with cuentapropistas. The majority of these interviews had duration of over one hour. They were conducted in the business of the entrepreneur (15), their house (5) or in a coffee bar/ lunchroom (9). The respondents all work in Havana, in the municipalities Habana Vieja (5), Centro Habana (8), Plaza de la Revolución/ Vedado (7) and Playa (5).6 I interviewed 10 women and 19 men, a ratio similar to the full cuentapropista population in which 33 percent is female (ONEI, 2018a:11). I systematically collected basic information about the interview (date, duration and location) and the respondent (age, gender, municipality, sector, type of license, and years in business). At the beginning of each interview I stated that I do thesis-research about Cuban cuentapropismo, that I am enrolled at the University of Havana and the University of Amsterdam, that I will not record them and that I treat all the information completely confidential and that I guarantee their anonymity. I thus explicitly positioned myself as a European student who is very interested in the realities of cuentapropistas and treats their information confidentially. When I noticed that respondents gave very broad answers to questions or remained limited to very basic explanations, I introduced follow-up questions with more specific context. During my time in Havana I noticed that many foreigners have very limited knowledge about the Cuban political and economic system, which could explain why cuentapropistas sometimes gave very simple and broad answers. By showing my knowledge about the topic, I aimed to provoke more detailed responses that would go beyond basic statements. When I quote from the notes of the interviews I only refer to the number of the respondent (R#). In the three profiles of cuentapropistas (‘cuentapropista close-up’) in chapter 5 I use

pseudonyms.7 _{I provide basic information about the interviews and respondents in Appendix 1. All}

cuentapropistas were directly approached by myself, while they were doing their work. I did not engage on interview opportunities that were arranged by others (neither tips from academics at the University of Havana nor tips provided by respondents) in order to stay away from avoidable bias in the data-collection due to possible peer-pressure or remaining in a ‘circle of people’ with similar ideas (one of the potential downsides of snowball sampling). Albeit the mixed characteristics of my respondents (gender, age, type of license) their limited number and the unavailability of statistical data about the full

6_{The owner of a construction company and three taxi-drivers work in various places in and outside Havana.}

7_{In chapter 5 I present short profiles of cuentapropistas (“Cuentapropista Close-up”) to provide the reader with extra context and give a more accessible view of}

the realities of individual cuentapropistas. The presentatation of these profiles is inspired on Feinberg (2013) who has a similar approach in his article about cuentapropismo in Cuba. The names in these profiles are pseudonyms, which is in line with for example Kersh (2018) who has an equal approach in her article about home-based informal employment in Cuba during the 1990s.

(27)

17 population make that this sample cannot be considered as representative for the full population of Cuban cuentapropistas.

Semi-structured in-depth interviews with experts

I conducted 14 interviews with experts. Most of these interviews lasted around two hours, although a few were shorter due to a lack of time of the expert. Eight of them do research on the private sector in the Cuban economy at the University of Havana and one does so for the Ministry of Science, Technology and Environment. Three have advised the Standing Commission for Implementation and Development (Comisión Permanente de Implementación y Desarrollo de los Lineamientos), a permanent comity

that advices the Cuban government on economic reforms, which directly reports to senior leadership in the Cuban government (Granma, 2016; Torres Pérez, 2017: 258). Three work for civil society organizations concerned with cuentapropismo and one is founder and editor-in-chief of a magazine about cuentapropismo. In Appendix 2 I provide the names and functions of the experts along with the topic of the interviews; the first time I mention them in the text I provide their function. The first 5 interviews were arranged by my local supervisor, dr. Caram León, and started out as small lectures that evolved into interviews. These took place in the offices of these scholars at the University of Havana. The last 8 interviews were arranged by myself, and were from start till end interviews which took place at their work (3), their house (1) or in a coffee bar/ lunchroom (4). Similar to the interviews with cuentapropistas I stated that I was enrolled at the University of Amsterdam and the University of Havana and that I did research for my thesis about cuentapropismo. Since by the end of the field work I had conducted more interviews with cuentapropistas, I could ask specific questions about these outcomes in the last interviews with experts, while in the first interviews I mainly acquired useful background information and political and economic context. At the end of the interview I asked if I could publish their statements in my thesis, which all experts confirmed. I took notes with pen and paper which I later processed on my laptop and e-mailed to the experts to give them the opportunity to correct possible misunderstandings, which none of the experts did (although some confirmed the notes).

3.4. Additional research methods and data collection

Supplementary to the in-depth interviews I acquired data in a more informal way. Throughout my time in Havana I had dozens of short and informal conversations with cuentapropistas about the same topics as discussed in the interviews. With these cuentapropistas I talked only briefly, usually while I was making use of their services or buying their products (for example taxi-drivers, street vendors and restaurant owners), but I did not sit down for an in-depth interview. Of many of these conversations I made notes in my phone or notebook, but I did not systematically collect this data, which mainly served to provide my research of context and prepare for the interviews.

I went to two events organized by two important civil society organizations concerned with cuentapropismo: CubaEmprende and InCuba Empresasas (see section 4.3. for an introduction on these organizations). On May 21st_{I attended a workshop for aspirant cuentapropistas at InCuba Empresas.} During this workshop with the title “¿Podemos emprender con éxito?”, I took notes about questions asked

by participants, answers of the instructor and discussions among participants. At the beginning of the session I introduced myself as student of the University of Havana and gave a short introduction about my thesis topic. On May 30th_{and June 1}st_{I went to a fair organized by CubaEmprende, where I had} informal conversations with cuentapropistas and visitors. During most short conversations I did not

(28)

18 introduce myself, while during the longer conversations I often introduced myself and my thesis subject.

Due to my enrollment at the University of Havana, I was able to get in touch with and obtain legal and taxation data from Cuba’s national tax administration ONAT. Throughout the thesis I refer to those documents. I also discuss statistical data provided by Cuba’s statistical agency ONEI.8

Due to a wider approach at the beginning of the research process, I conducted several interviews with unlicensed people working in the informal economy. I also had conversations with two journalists, writing for a non-official Cuban online news outlet. I had an interview with one of the first presidents of a cooperative (also private sector), who was sent to Europe and Asia by the Cuban state to learn about the functioning of the private sector. She was also a representative of the Cuban civil society delegation representing the private sector, during the 2018 Cumbre de las Américas summit in

Lima, Peru. These interviews and conversations are not directly used in this thesis, but helped me better understand the Cuban context and ask better questions in the interviews.

In this chapter I aimed to provide a detailed account of the methodology and research process in this thesis. All methodological choices were made to acquire the most valid and reliable data to answer my research question, while taking into account ethical considerations and practicalities. It should be noted that the limited amount of interviews and the absence of detailed statistical data about cuentapropismo make that the research cannot be regarded as representative for the full population of cuentapropistas in Cuba, however it shines a light on a highly relevant topic that received limited attention in the academic literature and offer tools for further research.

8_{A general note for the interpretation of statistical data: it should be considered that ONEI is directly subsidized by the Cuban state and that there are no}

(29)

19

4. Cuentapropismo and the historical, economic

and regulatory context

4.1. Introduction

In this chapter I provide the context necessary for understanding the rise, relevance and functioning of cuentapropismo in Cuba. In the following section I provide a brief economic overview of the country (4.2). In the last section, I discuss the rise of the private sector from the 1990s until today, employment statistics and key aspects of the regulatory framework for cuentapropistas (4.3). I do not aim to give a comprehensive historical overview of the Cuban economy, but merely provide context relevant for understanding the specific research interest of this thesis. This contextual chapter is based on academic literature, newspaper articles, official statistics, regulatory and juridical documents, and interviews I had with experts.

4.2. A brief economic overview

From sugar to services

Centuries long Cuba was a commodity based economy fully focused on the production and export of sugar. In the 1920s Cuba produced more than five billion (5,000,000,000) kilos a year, making up for one-fifth of worldwide sugar production (Pollitt, 2004: 319). In the decades after the revolution in 1959, sugar production and export remained the most important economic activity on the island. When Cuba’s socialist government developed highly favorable terms of trade with the Soviet Union (USSR), and acquired its investments and technical assistance, sugar production was even more intensified. In 1990, almost half of Cuban land under cultivation was devoted to sugarcane production, which yielded 70 percent of total export revenues (Alvarez and Pérez-López, 2005: 3). With the collapse of the USSR in the early 1990s, Cuba’s sugar production and export dropped dramatically (see Figure A).

Figure A: The end of Cuba’s sugar mono-production and collapse of the USSR

Source: McMinimy (2016)

The dissolution of main ally and trading partner the USSR lead to a huge drop in Cuba’s GDP of 40% between 1990 and 1993 (Spadoni, 2014: 2) and around 50% in the period 1989-1994 (Vidal Alejandro, 2017: 14). The Cuban government was forced to pursue a new economic strategy that would free the

The Gray Zone of Cuban Private Entrepreneurship Case Study on Cuentapropismo in Havana and Legal and Illegal Ways to Deal With Strict Regulation