Building a Regulatory Regime for Cooperatives

Cliff DuRand

Cuba is poised to be the first country in history to have cooperatives as a major sector of its economy.  With the opening to urban cooperatives two years ago, this country embarked on a project of world historical importance to construct a 21st century socialism.  This is a project that uses the power of a socialist state to empower a socialist civil society by building democratically participatory economic institutions.    

A half century ago the Cuban Revolution socialized the means of production.  This was understood to mean that the revolutionary state was to be the representative of the working class in controlling the economy in a rational, planned way for the benefit of society as a whole.  Social property meant state property and that meant state control.  Now however, with the current program for the renovation of socialism, it has come to be seen that social property does not necessarily have to be under state control even when it is still under state ownership.  Collectivities of working people at the point of production can directly manage social property themselves.  Management does not necessarily have to be in the hands of the state.  Ownership and management can be separated.  This is the new understanding of socialism we are seeing today.  It is a turn away from the state socialism of the last century. 

It is no longer thought that only a revolutionary vanguard in control of the state apparatus can be trusted with the historical mission of building socialism.  Now after a half century of socialist construction, ordinary people at the base of society are deemed to have developed to the point where they can be trusted with this historical mission.  Indeed, it is through their participation in this project at the grassroots level that their capacity to “found society anew” can be further developed.   

In effect, the state is devolving power downward  -- economic power to cooperatives, political power to local levels of government.  The central state remains the constituted power of society as a whole.  The major means of production remain in the hands of the government and laws and policies continue to be made at the national level.  The state is not being disbanded.  It is just devolving powers downward in accordance with the principle of subsidarity.  Decisions should be made at lower levels while the higher levels support them.  This increases the constituent power that is the foundation of a socialist society.    

It’s not that state socialism was a failure.  It was necessary to move society away from the dead end of capitalism as well as to defend against the onslaught from other capitalist states.  What is of long run consequence is the sense of social solidarity this engendered.  A socialist consciousness and socialist values took root in the people.  It is from this platform that today’s renovation is being launched.  At the same time, there was a serious limitation in state socialism.  Although there were abundant opportunities for popular participation, this tended toward a passive participation.  With a paternalistic state undertaking to do everything for the people, there was little space for initiative by the citizenry.  As popular humor put it: “how do you conjugate the verb participar?  Answer: I participate, you participate, they decide.” 

The present withdrawal of the state from portions of the economy aims to expand the scope of participation at the point of production.  Democratic worker owned cooperatives open space for an active participation in daily life at the workplace.  No longer do workers have to wait for decisions to come down from above.  They are no longer passive participants.  Cooperative members are responsible for the running of their enterprise.  New social relations emerge – socialist social relations.  Socialist human beings are developed through practice.  The resulting sense of collective empowerment becomes a motivator that is itself a force of production – a socialist force of production that produces not only use values, but also socialist human beings. 

It was in December 2012 that Cuba embarked on this course when the National Assembly passed an urban cooperative law that established the legal basis for the new urban cooperatives.  This was seen as experimental.  Based on the results, a comprehensive law of cooperatives is planned for 2016.  As of July 1, 2014, 498 new cooperatives had been approved, mostly in and around Havana.  Many others were awaiting approval. 

The socialist state is supporting these new cooperatives in a number of ways.  Capitalization is coming from bank loans and a new Finance Ministry fund for cooperatives, as well as member contributions.  The tax rate is lower for cooperatives than it is for private businesses.  They can buy from the state at a 20% discount.  Where a cooperative is formed from a former state enterprise (which is the bulk of the cases so far), the new cooperative can have 10 year renewable leases for use of the premises, paying no rent in the first year if improvements are made.


Beyond these material preferences given to cooperatives, the state has begun to establish a legal framework for them in the 2012 law.  This includes the following provisions:

  • A cooperative must have at least 3 members, but can have as many as 60 or more.  One vote per socio.  As self-governing enterprises, cooperatives are to set up their own internal democratic decision making structures. 
  • Cooperatives are independent of the state.  They are to respond to the market. 
  • Member contributions to capitalization are treated as loans (not equity) and do not give additional votes.  Loans are to be repaid from profits.
  • Cooperatives are to pay taxes on profits and social security for socios.
  • Distribution of profits is to be decided by socios after setting aside a reserve fund.
  • Cooperatives may hire wage labor on a temporary basis (up to 90 days).  After 90 days a temporary worker must be offered membership or let go.  Total temporary worker time cannot exceed 10% of the total work days for the year.  This gives cooperatives flexibility to hire extra workers seasonally or in response to increased market demands, but prevents significant collective exploitation of wage labor. 


While the state is to promote cooperatives, at the same time there are impediments to the cooperativization process coming from the state.  These are a consequence of a contradiction between the old hierarchical structure of state socialism and the new participatory practices proclaimed for a renovated socialism.  As has often been said, “there needs to be a change in mentality.” 

In her study of the cooperativization process Camila Pineiro Harnecker has identified a number of shortcomings.  She points out that the approval procedure to become a cooperative has too many steps, does not include timelines and is subject to administrative will.  The conversion of a state business into a cooperative is at the initiative of the state, not the workers, who are not even consulted about becoming a cooperative.  Typically there is no education of workers about cooperatives – a serious shortcoming.  Sometimes state enterprises even refuse to deal with them.  There is no institution to supervise the internal functioning of cooperatives or to mediate conflicts.  There is no organization to represent the interests of cooperatives before the state, comparable to ANAP for small farmers.   [ cf. Camila Pineiro Harnecker, “Cuba’s cooperatives: Their contribution to Cuba’s new socialism” in Moving Beyond Capitalism, Cliff DuRand, ed. (Ashgate Publishers, forthcoming)]   Hopefully all of these defects will be addressed in the 2016 law. 

In addition to that, there is a vital political imperative for strengthening cooperatives.  Along with private businesses, in the next few years they are expected to provide 35% of employment and 45% of the GDP.  In effect, private businesses and cooperatives are in competition for predominance in this non-state sector of the economy.  On a level playing field where each could develop based on their own strengths, cooperatives ought to prevail.  And this is especially so given preferential treatment by the state.  However, the playing field is far from level.  Private businesses are receiving substantial capitalization from relatives living abroad in the form of remittances.  To this there is now added further financial and material support due to changes in US remittance and export policies under the Obama Administration.  These are designed to support “the independence of the Cuban people from their government.” 

While these policies are aimed to benefit private businesses and develop a nascent capitalist class in Cuba, they also open the way for support of cooperatives.  To take advantage of this opening, the cooperative regulatory regime will need to facilitate solidarity aid from abroad.  Loans, material aid, technical assistance and training can help strengthen cooperatives in Cuba.  The state can also promote exports by cooperatives to the US market of such things as handicrafts, art, and, especially, organics.  This will enable them to earn hard currency foreign exchange. 

For its part, the Center for Global Justice, located in San Miguel de Allende, Mexico, has begun a collaboration with the Instituto de Filosofia in its cooperative training program in Central Havana.  Training of Cuban workers in the principles and operations of this unfamiliar business form is urgently needed if cooperatives are to succeed.  The Center has been conducting workshops for Mexican campesinos for the last four years.  The exchange of experiences and resources with our Cuban comrades promises to be fruitful for both sides.  It is an example that hopefully others will also follow. 

Consideration should also be given to the eventual conversion of private businesses into cooperatives.  Those businesses are allowed to employ wage labor.  This enables them to grow beyond the size of a small or even middle size enterprise.  Although regulations limit the number of wage laborers, reportedly these limits are not being enforced.  The exploitation of wage labor presents the opportunity for accumulation of wealth in private hands, something that current policy says will not be allowed.  But how to prevent that?

One solution is to require private businesses once they have reached a certain size to convert into cooperatives so all who are employed there can enjoy the benefits equally (no exploitation) and participate in decision making (democracy).  This could be done with tax incentives for conversion and political organizing of their wage labor force.  Such measures would assure the predominance of the socialist form of enterprise over the nascent capitalist form of private business. 

These then are some of the features of a socialist regulatory regime for cooperatives in the Cuban context. 

As Gramsci pointed out, the state penetrates down into civil society.  Foucault takes this a step further with his notion of governmentality.  This refers to those systems of control that extend even into the subjectivity of the human, into the self.  This is what makes a social system self-governing and self-replicating.  Cooperatives educate their members to the values and practices of a participatory socialism.  This is more than an invigoration of civil society, it is also construction of a socialist governmentality in Foucault’s deeper sense.  It is a resocialization of workers away from their passivity under a paternalistic state socialism to protagonistic participants able to found society anew.  Some Marxists see cooperatives as a step back from what they consider a more advanced state socialism, perhaps even a step toward capitalism.  But my view is that it is a step forward toward a society ruled by the associated producers.    

If a social order is to be sustainable over the long run, it needs to be rooted in the character of the people.  Their values, their sensibilities, their taken-for-granted understandings, their very subjectivity needs to be consonant with its institutions.  The socialist transition is a process that needs a people with a socialist character if it is to continue.  The social relations of cooperatives help build such a character among the people.   

At a time when global capitalism is in crisis, there is a pressing need for an alternative.  At a time when the state socialist model no longer inspires, there is also need of a renovated socialism.  Socialism needs a socialist state.  But equally, a socialist state needs a socialist people.  In this century we are beginning to see a socialist state empowering a socialist people.  The future of humanity depends on its success. 

                                                                                    -- June 2015