Issue #22 Who’s To Blame For Corruption?

Reporters from the Cuban newspaper Juventud Rebelde went to El Manzanares, a Havana cafeteria, in search of petty corruption. They found it easily. Patrons who paid for one-third of a liter of beer were routinely being served a quarter liter. The reporters confronted the manager, Alberto Osorio Ramos, “who seemed infuriated” by his subordinates’ cheating.

To the reporters, Yailin Orta Rivera and Norge Martinez Montero, the cheating was no accident. In their October 1 article titled “The Big Old Swindle,” they pointed out that by cutting the size of servings, the cafeteria’s employees were able to skim from the cash register the equivalent of one worker’s monthly pay every day.

Around Havana, the reporters documented many similar cases: state establishments serving smaller quantities of food and drink than customers had paid for, a watch repair facility where workers charged prices higher than regulations allow, and a taxi driver who charged four times the fare on his meter. These practices, the reporters said, reduce the idea of consumer protection to a mere “slogan.”

The Juventud Rebelde article, first of a three-part series, called these forms of petty corruption a “perceptible evil” on the surface of Cuban society. “Some state services are being used for personal profit by insensitive people who rig the prices and quantities of products, crossing the boundary between what belongs to the state and what is private,” it said. The result is injury to consumers and to “the moral principles that the Revolution has always defended.” And the injury is extensive: 52 percent of state retail establishments inspected this year were found to be charging more or delivering less to consumers than provided by official norms.

The second article in the series appeared October 15. It began with the reporters seeking to have a pair of shoes re-soled at a state repair shop. A repairman offered to do the job, but he explained that he would charge more than three times the official price because he buys his own supplies and has to recover his costs. A supervisor said that repairmen are supplied the necessary work materials “whenever we can.”

There were other state retail enterprises — barber and beauty shops, a home appliance repair shop, cafeterias — where the state provides so few supplies that workers regularly buy them themselves. There was even a taxi driver who supplied the materials and labor to repair a taxi that his company was preparing to junk.

The reporters quoted an official who denied that workers would ever need to buy their own supplies, then they cast doubt on his statement. They quoted a barber shop manager who said that his workers altruistically buy their own supplies just to keep the shop open, and their only earnings are their modest 300-peso monthly salaries. But the article showed that there and in other businesses, workers are in part in business for themselves. The reporters observed that workers collect receipts, put some in the cash register, and keep some to buy supplies and for their own income, above and beyond their salary.

Corruption in state enterprises has been discussed before by officials and reported in Cuban media. Last November Cuban President Fidel Castro told how gas station receipts doubled when young “social workers” were assigned to keep track of inventory and receipts; the extra scrutiny apparently disrupted a large-scale employee scam. The Juventud Rebelde series is therefore not unique, but its reporting adds a new dimension to the corruption story and carries important policy implications.

What the reporters described were retail businesses that would have to close if employees truly followed the rules, and that stayed open only because employees broke the rules and engaged in private business (providing capital, setting prices, pocketing revenues) within these ostensibly socialist facilities. They also showed that many of the central state enterprises are dysfunctional, unable to supply essential products and maintenance materials to their retail outlets.

These are bitter facts to air in a place where socialist state enterprises are said to represent the revolution’s values, delivering services at fair, controlled prices without the exploitation or inefficiency of capitalist systems. Indeed, officials cite the superiority of state enterprises when they explain why Cuba allows such narrow scope for small private entrepreneurship. (Interestingly, the Juventud Rebelde article credits Cuba’s licensed entrepreneurs for paying taxes and utility bills, in contrast to the state employees they found earning private profits within state enterprises.)

What is to be done?

On October 25, it was announced that new regulations will go into effect next January 2 “to confront indiscipline and illegalities” in state enterprises. This is a tried-and-true response implying greater scrutiny and law enforcement efforts to respond to illegal actions of individuals. It recalls Fidel Castro’s statement in last November’s speech, where he said that following the successful exposure of fraud in gas stations, social workers might be deployed to bakeries, cafeterias, pharmacies, and other installations.

But what if the problem lies not in the moral failings of individuals, but in some aspect of the system itself?

That question is raised in the third Juventud Rebelde article, where it is disclosed that a team of academics from Cuba’s Institute of Philosophy will undertake a study of “socialist property.” The objective, the article says, is for “science to go to the causes of the problems” affecting Cuba’s 3,800 state enterprises.

The authors interviewed Cuban academics who indicate where solutions might possibly be found. Remedies such as new forms of “organization,” improved “control mechanisms,” a better supply system, and creating “conditions that make the citizen function as part of a collective” are cited.

But other possibilities are mentioned that move beyond the predictable: creating a system of state enterprises that are “freed of bureaucratic shackles;” allowing more decisions to be made by the “productive base,” i.e. in the enterprises themselves; and changing a system where employees have no “direct relationship with profits.”

These ideas recall a state enterprise reform program that was initiated in the 1990’s and had partial success. This program, called perfeccionamiento empresarial, forces enterprises to adopt honest accounting practices and to make a profit-oriented business plan based on an inventory of their strengths and weakness and the opportunities they face in the marketplace. It results in less bureaucracy and greater authority for managers, including the power to hire and lay off workers as needed. It also requires that workers be offered incentive pay based on the profits of the enterprise. This program, which borrows capitalist management ideas, originated in the 1980’s in the enterprises run by the Cuban armed forces, under the leadership of defense minister Raul Castro.

It is impossible to predict whether the “socialist property” study will result in reforms that use decentralization and profit motives to eliminate the causes of petty corruption in state enterprises. Expectations of economic reform in Cuba have come and gone before. And one must question whether any reform of the state enterprises themselves can succeed as long as Cuba’s partially reformed economy is marked by serious income inequality (see table, below).

What is clear is that the Juventud Rebelde articles have told Cuban consumers in a frank and dramatic fashion that their government recognizes that state enterprises do not serve them well — “customers are left dancing with the ugliest one,” one article concluded — and that law enforcement alone is not the solution to the problem. In effect, the government has challenged itself to act, and has raised a new public expectation.

Before Raul Castro turned 75 years old last year, a 5,800-word survey of his career and personality appeared in Granma, the official organ of the Cuban communist party. Raul recognizes, the article said, that “today’s youth are more demanding,” and that “is not a bad sign.” He believes, the article continued, “that every generation needs its own motivations and its own values, at the same time he insists on making it very clear that no one will become a revolutionary today simply because we explain to them the extreme hardships that their parents and grandparents suffered.”

The article did not say what Cuba’s interim president believes would inspire allegiance to the revolutionary project if old war stories do not suffice; that question was left hanging. The coming year will tell us if economic policy change is his answer.

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The following is an excerpt from a new Lexington study (download pdf) on Cuba’s cuentapropistas, the entrepreneurs who have been working with licenses since 1993. It illustrates the income inequality across Cuba’s workforce that often leads to illegality.

Purchasing power

To illustrate the purchasing power of Cubans of varied earnings, the following table shows how much work time is required to pay for a shopping trip to buy food at farmers markets using pesos (one pound each of tomatoes, pork chops, rice, and black beans, plus a lime and a head of garlic), plus a few purchases in dollar stores: a tube of Pepsodent toothpaste, a pound of detergent, a pair of Chinese pliers, and a liter of soy oil. The cost, with the dollar purchases converted to pesos, add up to 248 pesos. The disparity in purchasing power among different lines of work explains why many engage in moonlighting, small-scale pilfering of state resources, or other black-market activity.

• Retiree earning minimum pension – 1.6 months
• Day care worker earning minimum salary – 1.1 months
• Professor – 3 weeks
• State worker with average salary – 2 weeks, 3 days
• Cuentapropista hairdresser – 2 weeks
• Physician – 1 week, 4 days
• Varadero hotel housekeeper – 5 days
• Cuentapropista streetside snack vendor – 5 days
• Meat vendor in farmers market – 4.5 days
• Average cuentapropista (pesos) – 4.1 days
• Unlicensed bicitaxi – 3 days
• Hotel entertainer – 2.8 days
• Cuentapropista tire repair – 2.7 days
• Cuentapropista home rental (provincial) – 7 hours
• Average cuentapropista (dollars) – 6 hours

Calculations based on salaries and prices observed in Havana, Santiago, Ciego de Avila, and Holguin. Farmers market prices were nine percent higher in Havana than in the provinces.