Last week, panic spread among businesspeople when word got out that the Government is beginning to cap prices. Although for the time being only the regulations published by the Assembly of Popular Power in Guantanamo are known, and a similar provision for Villa Clara is circulating on the networks, it is feared that we are facing the intensification of a policy expected, and feared, because of how the government’s press and officials have been stigmatizing the "problem" of MSMEs, fanning animosity towards these establishments, which today supply everything that bodegas, national currency stores, old stores accepting CUC, and current stores accepting MLC, no longer provide.
Thousands of entrepreneurs who, taking advantage of the new laws, opened stands to resell imported food, toiletries and clothing, fear that the breeze of market freedom that seemed to refresh Cuba, when small and medium-sized private enterprises were allowed two years ago, is to be quelled.
The fact is that the regime does not want private companies, but rather ones connected and behold to it; a kleptocratic bourgeoisie similar to that of the Russian oligarchs; accomplices mocking what is left of the US embargo and making the dictatorship look better on the international stage as it washes its hands of inflation, for which the people are already blaming private individuals more than the State.
In order for this private-sector farce to work, the government could not handpick the entrepreneurs. Rather, it had to implement laws approving, besides its own, thousands of daredevils (one has to be one in order to invest in Cuba) striving to prosper even when the state harbors the clear and firm purpose of gradually eliminating them.
At the end of last year, Castroism advanced in its plan to harass and demolish truly private entrepreneurs when, without any economic justification whatsoever, it eliminated the only fiscal benefit (a one-year tax rebate) enjoyed by MSMEs. In addition, it restricted their corporate purpose by forcing them to one main activity, and a few closely related subsidiary ones, while the previously approved companies (most of them government-owned) enjoy patents with a very broad spectrum of commercial activities.
An intensification of the State's pricing policy would seem to be a second step in this crackdown on independent MSMEs, as, thanks to several mechanisms that the State has implemented in order to promote those with connections to it, it will be them that will suffer the most from the price caps.
In the first place, the governmentally-restricted direct access to the international market fosters a wholesale monopoly with very inelastic prices in the hands of MSMEs with ties to the regime. In contrast, the thousands of retailers (mostly private entrepreneurs) have their prices exposed to popular scrutiny, such that the people assume that they are so high (relative to state wages) due to speculative abuse, without realizing how expensive is for these MSMEs to source from the monopoly of wholesale importers cozy with government ties.
It is this retail sector, where there is some competition between private companies, that will suffer the price caps, while government-affiliated wholesalers, which do not sell directly to the public, will be much less affected. In the long run they could even benefit if they extend their business to retail sales after real entrepreneurs have gone bankrupt.
Secondly, although the exchange rate is frozen at 120 CUP per dollar, in the street the dollar is quoted at over 200 pesos, causing the costs of imported products (almost everything that is marketed) for private MSMEs to be more than 40% higher than those of well-connected MSMEs, many of which enjoy a hidden subsidy through the centralized mechanism of foreign currency allocation, which provides them with dollars below, even, the official value.
Furthermore, while financial costs are predictable for those cozy with the state, others must calculate not only what the dollar costs when they invest, but also how much it will cost when, weeks or months later, they manage to sell their product, and must buy foreign currency on the street to restock.
This monetary depreciation between the outlay and the reception of revenue introduces risks (which must be applied to sales prices) that the well-connected are spared. Thus, selling at the same prices, they make more and, therefore, they can better withstand price ceilings because they have stable financial costs, apart from being subsidized.
To make matters worse, inspectors (until now the only price control mechanism for MSMEs) issue fines for thousands of pesos when they conclude that there are excessive prices with respect to some costs, which they calculate by comparing the dollar, at the official exchange rate of 120CUP, and the value of the product, or a similar one, at MLC stores, even though the legal exchange market does not supply even 5% of the foreign currency needs of private MSMEs, and that these buy very little at MLC stores, and, in contrast, a lot from wholesale, importing MSMEs.
To better understand all this, it is necessary to realize that it was never Castro's plan to allow only its favored MSMEs, but that it behooves the regime for there to be thousands of Cuban entrepreneurs, who give this fraudulent change greater credibility, attract investment, and discover market niches that can then be appropriated by the MSMEs close to the government. The real plan is for thousands of MSMEs to emerge and, little by little, by means of subterfuges that rig competition, the regime’s favorites will take over the apparently private market, capitalizing on the major businesses and leaving the rest small fry for the people.
Furthermore, it is very important that the private sector now serve as a scapegoat, a target of social discontent due to the inflation that, with bad intentions, the Government is generating in order to balance its macro accounts and make socialist state enterprises "profitable," and well-connected MSMEs rich.
Private entrepreneurs are right to be fearful, as they should realize that they are skating on very thin ice, such that it would be wise for them to take what they have earned and abandon a realm where ?socialism or death? is not just a metaphor in bad taste.