Cuba: Who's to Blame for Corruption?

Monday, November 06, 2006
Cuba: Who's to Blame for Corruption?
Havana, Cuba (Photo by Latin Business Chronicle)

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

BY PHILIP PETERS

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."

PERCEPTIBLE EVIL

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.

NEW DIMENSION

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.)

FAILURE OF SYSTEM, NOT INDIVIDUALS?

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.

CHANGING THE SYSTEM

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).

GOVERNMENT ADMISSION

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.

Philip Peters is vice president of the Lexington Institute. Republished
with permission from the author.

http://www.latinbusinesschronicle.com/app/article.aspx?id=499