Sme Development In Cuba

DISSERTATION PROPOSAL NAME: Clemente Berrнos, Jr.___________

INSTITUTION: University of Pйcs______________

Faculty of Business and Economics

International Ph.D. Program______

DATE: 15 April 2005_________________

SIGNATURE: / Original Signed / PROFESSOR: Dr. Lбszlу Szerb_______________

TITLE: Small & Medium Business Development Policy of the Post-Socialist States of Central and Eastern Europe in their Transition to an Open Market Economy: Lessons and Applications for Cuba.

PROFESSOR COMMENTS:

Berrios, C. 1

DISSERTATION PROPOSAL

1. Title of Dissertation:

Small & Medium Business Development Policy of the Post-Socialist States of Central and Eastern Europe in their Transition to an Open Market Economy: Lessons and Applications for Cuba.

2. Aim of Dissertation & Motivation for Research:

The objective of this dissertation is to study the small and medium business policies developed in Central and Eastern Europe (CEE) as a result of their transition to an open market economy. The experience gained from the extraordinary process of transition, still under way in CEE and in the former Soviet Union (FSU), is rich with lessons that could guide policy making and action in a Cuba of the future. This dissertation attempts to distill some of these lessons and to explore those, which would facilitate the growth of small and medium size enterprises, the so-called SMEs, when transition finally unfolds in the island.

Many years after the initiation of transition in the former command economies of CEE and the FSU, one thing is certain: the process of transformation is far more complex and it takes far more time and resources than envisioned in 1989. The reason is that transition involves changing institutions, practices, and behaviors that have taken root in society during decades of centralized control and political repression. Another certainty is that it is possible to transform economic and political systems radically and end up with market economies and political democracies. Many years after the Berlin Wall fell; most production in countries in transition originates in the private sector and is transacted under free market conditions. In addition, most of the people live under democratic rule, where the people can vote governments out of office and have done so.

The decision to change came about at different times in different countries in the region. In fact, Hungary, Poland, and Yugoslavia had already started some reforms by the late 1980s, before the destruction of the Wall. In 1990, COMECON, the Soviet dominated free trade area, was dissolved as members decided to start trading in hard currency and at world market prices. The disappearance of the Soviet Union, where Gorbachev had started a re-structuring program under socialism, witnessed in 1992 the start of transition in Russia and the newly independent Baltic States.

How do I define transition? In this context, transition has been the process of transforming what were non democratic regimes, whose economic systems were centrally controlled by the government, and where the state owned most of the means of production. The major objective of transition, at the national level, has been to develop an economic and political system that stimulates sustainable economic development and increased national wellbeing, in a context of political freedom. The move toward a

Berrios, C. 2

private sector based economy operating in a market context has been a key aspect of transition. Another equally important aspect has been the move toward representative democracy.

The modus operandi of the former socialist countries in their transformation has required a number of key policy changes. To successfully divest the state of the elements used to control and to increase efficiency, most of the region's countries undertook programs of liberalization to free prices, privatization and distribution of the ownership of the means of production into private hands. In addition, the countries initiated stabilization programs that called for monetary and fiscal discipline. These stabilization programs provided the foundation for the development of financial systems that worked in market prices, and dealt with productive enterprises on the basis of their creditworthiness rather than by public subsidization. The introduction of hard budget constraints and the privatization of large firms have been, in fact, two of the most essential but also most difficult undertakings. In many of these countries this process has not been completed and has not been perfect.

A second group of changes has dealt with development of the institutional structures and processes required supporting a market system and private property. Aside from developing adequate financial systems, these efforts have included the development and adoption of an appropriate legal framework and legal institutions to address, inter alia, property rights, contractual dispute adjudication, the rules for commercial transactions, and a financial regulatory framework.

Finally, and in parallel with these changes, transition has meant the development of representative, participatory democracy. This undertaking has required the development of legal rules that protects and stimulates the creation of institutions of civil society including political parties, and that prescribes periodic competitive elections.

In terms of the objectives referred to earlier, experience indicates that, generally, CEE and FSU countries have ended up into two groups.

 Most progress has been achieved in the countries of Central Europe, such as Hungary, the

Czech Republic, Slovenia, Slovakia, Poland, and the Baltic countries. These are in fact the countries that historically have had