Cuba's Economic Reforms and the Performance of Organizations Kislaya Prasad Robert H. Smith School of Business University of Maryland 1
Overview • Cuba’s Reform Process • Multiple organizational forms coexist now • State-run, Private and Cooperative • Key Questions – • Comparative performance • Effect of reforms on performance • Methodology • Field research in Havana, Cuba • Analysis of ratings and reviews on Trip. Advisor • Conclusions 2
Economic Reforms • The Cuban Economy • Low per capita GDP but high social consumption • Significant elements of planned economy still in place • External dependence (USSR, Venezuela, China) • Reform process (2010 -11) • Expansion of economic freedoms • Leasing, hiring workers, buy/sell property, direct sales, micro-credit … • Acceptance of self-employment, small enterprises & cooperatives • Massive government job cuts proposed • Greater acceptance of foreign investments (joint ventures) 3
Restaurants • Private restaurants existed before the 2010 -11 reforms • Severely constrained • Number of seats, hiring workers, leasing space, credit, etc. • The 2010 announcement • Increased number of customers that could be served • Expansion of menus • Some state-run restaurants turned into worker cooperatives • New cooperatives also permitted 4
Organization & Performance • How successful are the private and state-run enterprises? • How do they compare with one another? • How did reforms affect performance? • Field research • Worker Cooperatives • Microenterprises (self-employed, small entrepreneurs) • Trip. Advisor ratings and reviews 5
Worker Cooperatives • Organopónico Vivero Alamar (OVA) • Cooperativa Reconstructora de Vehículos (CRV) • La Casona de 17 Governance • Profit sharing • Ownership of resources • Worker Management How successful are they? 6
Distribution of Ratings by Ownership I extract individual ratings of restaurants from 2008 -2017 Scale of 1 -5 (5 being best) 7
Yearly Average Ratings 8
Monthly Average Ratings 9
Number of Reviews 10
Analysis of Text Reviews • Using sentiment mining techniques, text reviews are scored (scale +1 to -1) “Best restaurant we went to in Havana. Fun drinks, amazing garlic fries, tacos etc. Don’t forget to try their salsa and plantain chips. Highly recommend. ” “It’s a scam. That’s it. A tourist scam with terrible food. People try to hustle you in while out in the streets. Once they get you the restaurant is out of everything so the waitress picks your food for you. Terrible, terrible. ” • In particular, sentences that deal with various aspects of the restaurant experience such as “food, ” “drinks, ” “staff” and “service” are scored. “the views are quite amazing from here and the staff are very friendly” 11
Average Sentiment Score Corroborates numerical ratings 12
Sentiment – Select Aspects Staff and service is a major difference 13
Aspects Over Time 14
Regression Results VARIABLES Constant Ownership (1) (2) (3) Rating 4. 416*** 3. 925*** 4. 457*** (0. 006) (0. 087) (0. 008) -0. 389*** -0. 082 -0. 418*** (0. 009) (0. 107) (0. 014) Post 2010 0. 492*** (0. 087) Ownership × Post 2010 -0. 307*** (0. 107) Post 2015 -0. 075*** (0. 011) Ownership × Post 2015 0. 050** (0. 019) Observations 50, 431 R-squared 0. 033 0. 034 Standard errors in parentheses *** p<0. 001, ** p<0. 01, * p<0. 1 15
Conclusions • Pre-reform, there is no significant difference between private and state-run firms. • The post-reform ratings of private firms are higher than prereform ratings by an average of 0. 492, and the post-reform ratings of state-owned firms are lower than those of private firms by 0. 307. • I conduct a similar analysis of change in US policy in 2015. Here state-run firm ratings are lower in the pre-reform period by about 0. 42. • Private firm ratings decline after the policy change, but state-run firms show a smaller decline. 16
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