http://www.granma.cu/cuba/2014-06-12/soltar-amarras Breaking ties The recent new measures that give socialist state enterprises more leeway and other decisions stemmed from the implementation of the Guidelines of the Party and the Revolution are blazing the trail towards corporate development. Author: Yudy Castro Morales | yudy@granma.cu / June 12, 2014 By ‘autonomy’, today’s corporate Cuba understands updating and an eagerness to work. The term also involves a great deal of responsibility for an effective economic management in a less bureaucratic scenario and with as few operational restrictions as possible. The new changes will allow our state enterprises to blaze a trail for efficiency and pay better salaries. (Photo: Yaimí Ravelo) Tied to immovable social objects and limitations to administer their profits in such a way that they could go straight to labor’s pocket and thus be harbingers of future prosperity, many entities were swamped by edicts designed to torpedo their work and harbor incompetence and idleness –usually the culprits for repeated failure– rather than breed effectiveness and productivity. The pay-for-performance system must help increase productivity and make the most of the working hours, TECNOLAB employees assure. (Photo: Ismael Batista The approval of new measures that give socialist state enterprises more leeway (published on April 28 in Cuba’s Gaceta Oficial Extraordinaria No. 21) and other previous decisions born from the implementation of the Guidelines of the Party and the Revolution are clearing the way for corporate development. Grisel Tristá Arbesú, Area Director of the Standing Commission for Implementation and Development, emphasizes that these new rules cannot be seen in isolation. “They make up a tightly knit package of measures of a systemic and integrative nature that covers everything from our Tax Law and the resolution on social objects to the newest additions that link salary to outcome and establish late-model financial relations at corporate level,” she said. “The ultimate goal is to turn the socialist state enterprise into the basic form of economic management, making it more flexible in the interests of increasing its effectiveness and competence as steppingstones to a prosperous and sustainable society. Moreover, managers take center stage, as they are urged to be better prepared, more responsible, sharper and even bolder.” To be sure, those in charge of this task are steeped in this study, and must put in enough time on it to play it safe but not too much that they risk inactivity. Essential as it is today, their training should go beyond the limits of the enterprise and reach the State Central Administration Bodies and as many national organizations as necessary. It’s worth pointing out as well that a set of rules is not a magic wand capable of solving pressing economic problems in a flash. We must bear in mind that they will be gradually put into practice in a context of financial restraints. Consequently, we will not see any progress right away, nor will all entities meet success at the same time. DECISION-MAKING BELONGS IN THE ENTERPRISE Separating the State’s role from the enterprise’s, getting ready to unleash our productive forces and broadening the scope of Cuban employers are among the provisions clearly stated in the Guidelines approved by the Sixth Party Congress, which explains why –Tristá Arbesú emphasizes– the policies laid down to update our economic model have a major impact on the state enterprise’s performance. Making social objects more flexible is one major change. Even if any important task to be carried out by our entities must still wait for the go-ahead from the Ministry of Economy and Planning, now they are free to undertake secondary, occasional and supporting activities related to the said objects, which lets them make the most of their potential. Another positive impact could come from the possibility to market their surplus or unfinished output –once they have delivered to the state the amount and type of goods and services in line with their obligations to the State– at a price based on the law of supply and demand, agreed with the customer. These sales will be made first to our wholesalers and then to the rest of the legal entities. In statements to Granma, several managers admitted to the benefits of it all, as now they can quickly decide what to do with some productions as a rule confined to huge idle inventories bound to freeze great amounts of resources. Another equally important step toward the decentralization of powers is the approval of enterprise plans, a responsibility that in most cases will go to the president of the Higher Management Organization (OSDE), a duty hitherto entrusted to either the relevant Minister or the chair of the Provincial Administration Council at local level. According to Electronics OSDE first deputy minister José Gaspar Álvarez and subordinate Arturno Ernesto Foyo, financial director of TECNOLAB (a laboratory technology enterprise), this will streamline business and boost production: “Our managers often knew how to deal with any given issue, but had to wait for so long until they were green-lit by the higher-ups that what could have been a timely solution would usually become a mere Band-Aid”. These changes will also include the definition of a system with fewer managerial indications and more focused on performance evaluation. Once the new regulations are in place, it will include total net sales, stage-by-stage profits, state-set production targets, export-oriented sales, contributions from returns on state investments, working capital cycles and hard-currency contributions while we still have two currencies in circulation. “We used to be burdened with too many confusing indicators,” says Carlos Alberto Valido, director general of Em­presa Cubana del Pan. “Now we can set our sights on what truly leads to efficiency.” LESS DEPENDENT ECONOMIC-FINANCIAL RELATIONS Every manager we talked to spoke in praise of the new system of economic-financial relations between the enterprises and the State Budget that will free the former from their obligation to bear both the depreciation and amortization of fixed tangible and intangible assets and the return of stocks left unused from previous years. They will also be allowed to keep up to 50% of their profits after taxes and use their reserves to increase their working capital, fund investments, develop research and training, repay bank credits, finance past book losses, pay for labor efficiency, and establish a Compensation Fund at OSDE level to make up for temporary off-balance sheet financing. Julio René Valdés, director general of Complejo Lácteo de La Habana, believes his work will benefit from the chance to use part of the after-tax profits to fund his own investments, whereas Arturo Ernesto Foyo is confident that the measure will help solve the “insoluble” problem of our endless string of outstanding invoices. In José Gaspar Álvarez’s opinion, it will also give fresh impetus to, say, our electronic industry, maimed by technological obsolescence and undercapitalization. Likewise, all entities will be able to distribute their profits among the employees to spur economic efficiency, provided they comply with the relevant managerial indicators and protect the average income-productivity correlation compared to the previous year. “In this way,” Foyo says, “we deal a harsh blow to despondency and upgrade most people’s culture of work”. Julio René Valdés holds in turn that many workers are eager to lead their enterprises along the paths of efficiency which, added to the fact that they can make extra profits and let their pockets decide whether they did good or bad, then productivity has to skyrocket of necessity. TO EACH ACCORDING TO THEIR RESULTS… Resolution No. 17/2014 of the Ministry of Labor and Social Security, on the forms of pay for performance and on time, eliminates salary-related administrative barriers for the sake of economic and financial rules as a function of the results achieved. As per its provisions, there are no administrative limits to the salary as long as the salary expenditures per value-adding peso scheduled for the period are not affected and the managerial indicators are met. It’s an attempt to spur productivity, cut down on expenses and costs, increase quality levels in production and service, and make the most of the working hours. Precisely because of this impact on corporate performance, most of the managers we interviewed had already started to train themselves and their teams, which they will extend to the whole staff. “A major upside,” says Gaspar Alvarez, “is that we can be stricter with each enterprise’s pay system and tailor it to their own characteristics. No two entities are exactly the same, or even two workshops within the same entity: maybe they make different items, have different financial sources and are bound to reach different production targets, all of which surely entails different wages. Could anyone be on top of so many specific details better than the directors themselves?” Bestowing such powers on the managers also involves making them and their board more responsible, for their decisions must be made collectively in order to reduce the margin of error as much as possible. CORPORATE IMPROVEMENT, AN IMPORTANT EXPERIENCE “As to the origins of the new rules that give state socialist enterprises greater autonomy, we recalled the corporate improvement process from the late 1980s and how it helped us design the novel system,” Grisel Tristá remarks. “Not for nothing does Guideline No. 15 state, and rightly so, that even if corporate improvement fits nicely into our economic model updating policies, the current process paves the way for higher forms of management never foreseen at first. That process is still on the go as we try to set the scene for a single corporate management system that leads to the passing of a Law on Enterprises. Furthermore, the entities that use it have proved to be more organized and efficient and are therefore better prepared to embrace and set in motion the new regulations,” she adds. Julio René Valdés, whose enterprise is part of the 40% of the national entities that signed up for corporate improvement, agrees. “We must learn from any positive experiences, since these days demand highly qualified and skilled managers”. Tristá Arbesú stressed the need for well-adjusted, stronger entities, but warns that we would be wrong to limit the whole decentralization and updating process to the enterprises. “It’s only fair that changes are also made at grassroots level and most decisions are taken there where we produce”. Regarding Cuba’s Base Enterprise Units, the specialist explained that research will continue to empower them as applicable. All of this, together with the experience we gain from such a higher degree of flexibility, will call for a permanent follow-up of its progress so as to make the necessary corrections along the way. Thus our state enterprises will be able to hoist sail and use the new winds to their greatest advantage.