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Vol 4 No. 1, Spring 2014
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VolumE 4, N umBEr 1SpriNg 2014
Editorial Review Board 2 From the Dean of the Godbold School of Business 4 From the Editors 4 artiClES Organizational Psychological Capital in Family-owned Franchise Firms and Corporate Social Responsibility 5 Esra Memili and Dianne H. B. Welsh
Nepotism and Ethical Reasoning in Family Businesses 21 Mario J. Hayek
Canine Conundrum: A Case Study in Technology, Ethics and Crisis Management Caroline Glackin, Jay Azriel, and Russell Porter 41
e Conflicting Drivers of Entrepreneurial Ethics 57 Robert Steinbauer, Nicholas D. Rhew, Eric Kinnamon, and Frances Fabian
Doing the Right ing: Entrepreneurship, Ethics and Corporate Social Responsibility in Castro’s Cuba and Pinochet’s Chile 73 Joseph L. Scarpaci
Invitation to Review Manuscripts 95 Subscription Form 96 About the Editors 97 Journal of Ethics & Entrepreneurship , Vol. 4, No. 1 (Spring 2014), pp. 73-94 73 ©Gardner-Webb University. All rights reserved. ISSN 2326-3776 (Print) ISSN 2326-3806 (Online)
Doing the Right Thing: Entrepreneurship, Ethics, and Corporate Social Responsibility in Castro’s Cuba and Pinochet’s Chile
Joseph L. Scarpaci
aBStraCt Constrained political regimes from the right and le spur entrepreneurship in ways that have received little attention in the Americas, and when they do, they address macro-economic issues and large multinational firms. In so doing, this macro-scale approach ignores thousands of smaller firms that employ tens of thousands of workers. ese case studies from authoritarian Chile and communist Cuba redress this issue of scale by showing how entrepreneurial ethics and social responsibility drive small- business business plans in unexpected ways. Financial documents such as balance sheets and income statements, or reports in business journals, are uncommon at this level of entrepreneurship in these two countries. Accordingly, the cases draw on ethnographic field research from the 1980s, 1990s, and the 2010s. e striking change from ‘staying under the radar’ to reaching out to numerous stakeholders is telling, and implies that neither the size of the firms nor the magnitude of sales condition the acts of altruism described in this article. While formal-sector studies emphasize corporate social responsibility, in Latin America these reciprocal networks have long existed, but receive little attention in the business literature.
KEY WORDS: Small-scale Entrepreneurs; Ethics, Reciprocity; Cuba; Chile
JoSEpH l. SCarpaCi is the former chair of Marketing and Management and presently an Associate Professor of Marketing at West Liberty University in West Virginia. He serves as Executive Director of e Center for the Study of Cuban Culture + Economy, and is a partner in e Havana Consulting Group. Telephone: 540.230.3143 Email: [email protected] 74 Journal of Ethics & Entrepreneurship
iNtroDuCtioN Entrepreneurs are characterized by their innovation and risk-bearing actions. Pioneering work by Schumpeter (1942) and Liebenstein (1968) helped to establish that entrepreneurs differ from business owners and managers. ey helped to switch the locus of control in the small enterprise to the risk-taking actions of the single proprietor. Aer WW II, Drucker and others examined the work setting of entrepreneurs, nudging researchers to avoid the urge to laud them and focus more on specifying the empirical aspects of their work: Drucker observed “there continues to be an implicit assumption that the entrepreneur contributes disproportionately to the economy of a nation, yet little has been done to isolate this individual for further analysis” (1958: 255). Decades later, Hofstede (2001) and others gathered cultural evidence that workers reared in the market economies of the Global North enjoy a particular advantage in being successful entrepreneurs because of the broader cultural milieu in which they were raised. Namely, the values and beliefs associated with individualism, masculinity, time orientation, and power distance (among individuals), seemed to be associated with nations that might embrace unfettered markets. Hofstede’s typology expanded McClelland’s narrow view on the cultural construction of risk-taking as a necessary precursor for capitalist behavior (see McClelland and Teague, 1975). Simply put, non-Western agrarian societies may not adapt as well to the pressures and risks of industrial capitalism as their counterparts in the Global North. However, the surge of BRIC (Brazil, Russia, India, China) and other emerging economies suggest a need for reconsidering these ideas about risk and entrepreneurship (Smith and Scarpaci 2000), and for placing these cases in ethical and corporate social responsibility (CSR). A vast literature exists on CSR in the advanced capitalist nations of the North Atlantic and Australasia, and almost exclusively among medium to large firms. e concern among private businesses for societal welfare carries intrinsic and extrinsic rewards. Within a firm, we know that “doing the right thing” instills pride and confidence among employees who realize there are non-material rewards for working at a firm that addresses social problems in the course of business (Aguilera et al. 2007; Bhattacharya et al. 2008). External rewards for firms practicing CSR not only boost the image of the company in the eyes of the market, but can also garner goodwill among consumers and adhere them to a firm’s brand, product or service. In other words, CSR gives entrepreneurs useful social capital. While it is broadly accepted that doing the “right thing” in market economies displays a firm’s moral principles that govern the conduct of other business people or groups, less has been written about “emerging economies,” ethical comportment, and CSR. Murphy and Coombes (2009) review of nearly two decades of the social entrepreneurship literature made no references to a single paper concerning ethics and CSR. is paper presents two ethnographic case studies from Latin America taken at points in time when two nations—Pinochet’s Chile and Raúl Castro’s Cuba—that were encouraging private sector development. Our cases show that draconian measures from the far right and ideological rigidity of the extreme le were catalysts for the protagonists discussed in this paper to start their own businesses. I identify the stakeholders in economies that had recently begun promoting entrepreneurship despite a legacy of socialist economic planning. Fieldwork in Chile over 5 months between 1985-1989 and one month in 2008, and in Cuba for 6 months, between 1998 and 2013, capture the ethical and entrepreneurial challenges confronted by two enterprises. e Chilean case draws on a formal girl’s dress Scarpaci 75 couture operation that developed in the slums of Santiago—the nation’s capital—and developed B2B ties with high-end retail outlets in New York, London and Paris. e entrepreneur gained his experience in sewing and marketing from an unexpected realm: the human rights sector. Our Cuban example stems from a sole proprietor pizza maker working out of his home in the island’s capital city of Havana, who aer being downsized by the Ministry of Housing, sought a livelihood in the food industry; a sector in peril in the state-mandated food provision system. ese cases bring forward the contradictions and difficulties for individual entrepreneurs which, in turn, are modified by ethics and socially-defined moral values. I argue that corporate social responsibility at this level is part of networks of reciprocity that both Latinamericanist anthropologists and management experts have long recognized. To develop these cases, we draw on a research paradigm that bridges our field research with broader literatures. We begin with a brief overview of entrepreneurship in emerging economies. A discussion of CSR and networks of reciprocity in Latin America follow that section. Next, we turn to a review of the interplay between entrepreneurial goals and ethics, which form what we call in this paper “CSR at the micro-scale.” We argue that the ethical behaviors of these two firms are in good measure anchored in the moral beliefs held by the entrepreneurs: clothier and pizza maker. Although the Chilean and Cuban settings reflect a time when socialism was losing its grip on the work force, the business decisions reflect a pattern of moral behavior similar to the three levels outlined by business ethicist Stevens (1979): preconventional morality, conventional morality, and postconventional morality. e paper concludes that despite the disparate conditions in Pincohet’s Chile and Castro’s Cuba, the marketing professionals in each firm gradually moved towards designing their business models to minimize ethical problems in their operations, and to avoid or denounce questionable or unethical practices.
ENtrEprENEurSHip iN EmErgiNg ECoNomiES Barriers to entrepreneurship are significant both in Cuba and Chile. Developing a sustainable small enterprise sector (“grassroots capitalism”) in the face of numerous obstacles, some of which are of a technical and economic nature, places entrepreneurs on a precarious slope; keeping production costs down may lead them to steal or resort to the black market. ese obstacles are formidable and have been analyzed extensively in the vast literature on transitional economies (Cruz and Villamil, 2000; Nee and Matthews 1996). A common complaint among small entrepreneurs in Cuba today is the absence of wholesale-priced inputs (Cruz and Villamil, 2000). Peters and Scarpaci (1998) documented the wholesale dilemma five years into the cuentapropista (solo-proprietorship experience that started in 1993 in Cuba) and Morales and Scarpaci (2013) find that it persists nearly 15 years later. As Ritter observed in the early years of Cuba’s timid privatizations, restricted access to markets and wholesaling are major limitations for cuentapropistas (Ritter, 1998; Klinghoffer 1998). Word of mouth, viral marketing, or possibly an article in a foreign tour guidebook or in-flight magazine oen drives foot traffic to private Cuban vendors. In Chile, mainly financial costs have to be surmounted for small vendors to ply their trades and services, and to advertise freely and through multiple channels. Despite these challenges, the small entrepreneurs discussed here give back to their communities in ways that are similar to corporate social responsibility (CSR). 76 Journal of Ethics & Entrepreneurship
CSr aND ENtrEprENEurSHip iN latiN amEriCa An axiom of CSR may well be that households and consumers require a certain level of material and financial well being if their final purchasing choice is to be influenced by a firm’s altruism, versus the value and price of a particular service. Nonetheless, even the smallest entrepreneur establishes a reputation—even if done in ad hoc fashion—that is reflected by credit practices, contributions to local charitable events, and other aspects beyond the marketing mix of price, product, placement and promotion (Grogg 2011). Latin American business responses to social responsibility have largely taken a backseat to benevolent groups such as trade unions, cooperatives, and Catholic church activities; though recently Pentecostal and evangelical groups have raised their social outreach activities. Multinational companies, non-governmental organizations, the UNDP, World Bank, and the Inter-American Development Bank have also pressed for CSR (Zerk, 2006; Husted and Allen 2006; Leutkenhorst 2004) Historically, some of these actors have provided such charitable deeds as providing pensions to and caring for the elderly and infirm. While it would be unfair to simply dismiss centuries of slavery or indentured servitude carried out in the region, there are historical precedents of community outreach that would today be considered aspects of CSR or RSE in Spanish (responsibilidad social empresarial) (Table 1). In line with Hunt et al. (2010), we draw on the context of the “base of the economic pyramid” in Chile and Cuba. “While the tradition [sic] phrase is ‘bottom of the economic pyramid,’ we prefer to express the concept as the base of the economic pyramid, which implies a strong, foundational relationship to an economy and avoids the negative connotation oen associated with the word ‘bottom’” (Hunt et al. 2010, 87; emphasis original).
table 1. precursors to Corporate Social responsibility in latin america
iNStitutioN aCtioN(S)
Catholic Church Hospitals, orphanages, schools
Benevolent societies Pension funds, medical care
Private charities Emergency relief funds, hospitals, schools, orphanages
Protestant organizations Hospitals, health care, technical and mechanical (extension) advice
Data Sources: Based on Scarpaci (1991), Imas (2006). Scarpaci 77
CSR is still in its infancy in Latin America (Peinado Vera 2006). e levels of government support, private sector promotion, and public awareness vary considerably (Table 2). For the purpose of this paper, it is noteworthy that Cuba is among the least developed CSR nations whereas Chile today ranks near the top, though at the time of the ethnographic fieldwork it was not. Nonetheless, CSR practices throughout the region share similar though somewhat uneven functions. ese five functions are 1) Disseminating “how-to” guides to incorporate CSR into business plans, 2) Advocate and publicize the “business case” for CSR and also carry out sector surveys, 3) Publicize “best practices” through awarding prizes and certificates to firms engaged in CSR, 4) Develop networks of civil society organizations who study CSR, and 5) Organize and/or attend workshops and conferences on CSR (Haslam 2004). Table 3 summarizes a few key functions of selected organizations that promote CSR in Latin America. We purposefully exclude the CSR programs promoted by multinational corporations such as Coca Cola, Adidas, Nike, Nestlé, Proctor and Gamble, and other firms so that a more national flavor can be presented. table 2. levels of Corporate Social responsibility in Selected latin american Countries Country private-sector government advocacy general public participation & promotion awareness
Argentina Low-medium Low Medium Brazil Low-medium Medium Medium Chile High Low Medium Colombia None-low None-low Low Costa Rica None-low None None-low Cuba None None None-low Dominican Republic None None None-low Ecuador Low None None-low Mexico Medium Medium Low-medium Nicaragua None None None-low Peru None None Low Trinidad Low-medium None-low None & Tobago Venezuela None None-low None-low
Source: Modified aer Haslam (2004, 4). 78 Journal of Ethics & Entrepreneurship
table 3. Selected CSr programs in latin america
Contemporary CSr function Source in latin america
Energía social Provides normalized electricity to subnormal Peinado-Veara (Colombia) markets and draws on small community (2006) enterprises ( called Mypimes) to collect monthly payments. Hired people who used to tap illegally into the electrical grid (called marañeros) to serve as contractors.
Forum Empresa Forum Empresa is an inter-American network Forum Empresa (Chile) created in 1997 that unites 20 leading www.empresa.org organizations in the field of Corporate Social Responsibility from Canada to Chile. e organizations in the network represent 19 countries in the region and have a combined total of close to 3,000 affiliated businesses.
Desarrollo de la Promotes the conceptual development and DERSE website: Responsa--bilidad practice of CSR in Uruguay http://www.deres. Social Empresarial org.uy/home/ of Uruguay home.php
Fundación Esquel e Ecuadorian Social Responsibility Foundation of Ecuador Consortium (CERES) is a network of website: organizations that promotes CSR in Ecuador. http://www.esquel. It is financed with contributions from org.ec/index.php? members and provides strategic planning til=programs& advice, workshops, and seminars. id_prg=10
IDEA - Instituto por el An academic organization that translates as Foundation Desarrollo Empresarial the ‘Business Administration Development website: de la Argentina Institute.’ Started in 1999, it provides training http://www.idea. programs for niche professions in Argentina. edu.pe/bief.htm
Unión Social de Since 1957 USEM aims to guide, unite and Website. Empresarios de México motivate business leaders so that, in light of http://www.usem Social Christian thought, members are .org.mx/contenidos committed to better themselves and their /index.php?mod= companies. ey use business as a means to cont&id=84 build a more just and humane society. Peru 2021 A nonprofit organization made up of business Peru 2021website: leaders whose mission is to lead the business //www.peru2021. sector to achieve a shared National Vision by org/peru- making the firm an agent of change and to 2021/quienes- develop the country through corporate somos.html responsibility as a strategic management tool. Scarpaci 79
Networks of reciprocity: CSr at the micro-scale In this section I examine the attributes of two entrepreneurs who could reasonably be classified as businessmen who practice CSR (Table 4). Each operation displays clear core competencies, and neither firm has been subject to either great regulation or bribes to local authorities despite the widely held notion that corruption is rampant everywhere in the developing realm (eobold 1990). As their businesses grew, they established strategic partnerships with stakeholders that engendered both goodwill that helped to drive down their production costs, while also enhancing final product quality. Small changes in the supply chain relationships even led to minor disintermediations in each business’s practice.
table 4. marketing management attributes of Chilean and Cuban Case Studies attributes Chile (1986-1989) Cuba (2006-2012) Core competency Manufacturing haute Baking high-quality yet couture girls’ dresses and affordable pizzas exclusively accessories mainly in B2B for local patrons who settings for up-scale purchase the products boutiques in New York City, exclusively in B2C setting in London and Paris in hard so (peso) currency currency (U.S. dollar)
Regulatory agencies County tax commission County tax enforcer; Provincial public health inspector (kitchen)
Bribery prevalence None Low, but rising 1
Strategic partnership Backward linkages with one Ultimately, with an textile factory; forward agricultural cooperative for linkages with human-rights the purchase of tomatoes appliqué (arpillera) artisans, instead of pricey state- vendors & promoters owned retail outlets with imported products
Disintermediation 2 Shiing from courier-carried Stopped buying expensive designs and site visits to imported canned tomatoes more timely FAX from state retail store correspondences
1See Ravsberg, F. (2013). Harmful recycling: On Cuba’s inept officials. Havana Times, http://www.havanatimes.org/?p=99050, retrieved September 27, 2013. Cuba’s Comptroller General recently reported that 75% of state-company managers had been “recycled” into other management positions, despite evidence of turning a blind eye to the and bookkeeping irregularities. Letters to the editor, carefully vetted, in the daily official newspaper of the Cuban Communist Party, even denounce the cadre of cronyism and managerial malfeasance. 2 Defined as the “elimination of intermediaries such as wholesalers or distributers from a marketing channel” (Lambe et al., 2008, 85) 80 Journal of Ethics & Entrepreneurship
eir support systems derive from personal and professional relationships that too oen have been characterized as activities in the “gray,” “black,” or “informal” sectors of the economy (Hardy 1987). Such characterizations, however, ignore a thick web of formal and informal contacts in Latin American that draw on fictive kinship (compadrazgo). Historically connected to the roles of godparents who are a part of Roman Catholic sacraments such as baptisms, First Holy Communion, Confirmation, and marriage, they transcend church functions and serve as fictive kinship relationship. Bonds develop from these reciprocal relationships that establish responsibilities and positions of honor that mean looking out for each other, child rearing, resource sharing, and even money lending. So important are they that families who have established these relationships oen refer to the adults as “aunt” or “uncle” (tías or tíos in Spanish). ese networks of reciprocity transcend income groups and social class (Lomnitz 1988).
Case #1. Haute couture in Chile Chile, like Cuba, developed a socialist economy in the 1960s and 1970s. e Christian Democratic governments of Eduardo Frei (1964-1970) greatly expanded access to social security, worker benefits, health care and higher education. In 1970, a three-way runoff for the presidency gave socialist physician, senator and Unidad Popular candidate Dr. Salvador Allende barely one-third of the popular vote. His candidacy was sealed when, according to the Chilean constitution, the national congress voted on the two leading candidates and Allende won by one percentage point. From the outset, Allende made it clear he would expand the state sector. In the educational field, for example, he ran a “university of all” program, and he began nationalizing strategic mining and manufacturing operations that alarmed U.S. interests, and the Nixon administration. Domestically, workers and students went on frequent strikes and material shortages evidenced by long lines became common by the second year of his term. Early on in his administration, Fidel Castro visited Chile where he and his entourage were allowed to travel unhindered throughout the nation. Castro’s entourage brandished automatic weapons, which annoyed the Chilean armed forces because it violated most diplomatic protocol norms (Sigmund 1977). Allende’s apparent disregard for establishing a market economy was well known. On one occasion in 1972, he invited Chilean businessman, telecommunications magnate, and realtor, Javier Vial to his office to ask him how his government was doing from the businessman’s perspective. Vial lamented that there were too many work stoppages, union strikes, transportation bottlenecks, and restrictions on capital markets. On hearing the assessment, Allende responded, “at’s great. It’s good to hear this confirmed from your perspective in the business sector” (Vial, personal communication). On 11 September 1973, General August Pinochet coordinated a coup d’état that ended the democratically elected term of Allende, and marked the beginning of 17 years of draconian cutbacks in the implementation of a new free-market political economy. 3 Chile’s military junta, led by General Pinochet, adhered quickly to the laissez-faire policies of Milton Friedman, then a professor at the University of Chicago. Former Chilean students of his quickly offered economic advice, and the Chilean economy was soon described as one shaped by the policies of the “Chicago boys” (Sigmund 1977). In short order, many large state firms that had been nationalized were sold off. Tariffs, many of them in triple digits to protect Chilean producers, were slashed to 10% (Scarpaci 1988). Scarpaci 81
On the civil society front, the Pinochet regime moved with a vengeance to silence opposition and those with leist tendencies. He targeted student organizations, unions, leist political parties, and other previously condoned forms of civic participation. Although the estimates vary, most authorities agree that nearly 3,000 Chileans were killed in the aermath of the coup d’état; most of this over the course of the following two years. is paled compared to neighboring Argentina’s dirty war with its 30,000-odd casualties; it nonetheless marked an abrupt about-face in the course of Chilean democracy (Wright 2007). Patricio (a pseudonym) was at the time of the 1973 unrest a member of student militant group, MIR (Leist Revolutionary Movement). He and his comrades were one of the first groups targeted by the Chilean national police (carabineros), secret police (DINA), and armed forces. Along with thousands of others, he was arrested within the first month of the Pinochet regime, and placed in the National [soccer] Stadium where he languished for two months. It was a traumatic experience for him, because many of those detained there were executed, tortured, or both. Upon his release, it was difficult to find work, partly because the economy was in bad shape, and partly because he had a police record. He spent the next three years working with the Roman Catholic Vicariate of Santiago, whose human rights division became the main internal human rights monitoring organization. One of the activities of the vicariate was to make appliqués (called arpilleras) that were crudely stitched landscapes that described life in the nation’s shantytowns, and the experience of those who had been kidnapped and “disappeared” by the regime (Scarpaci and Frazier 1993). When international visitors would come to the group’s center on the main town square in downtown Santiago, he would use his French and English in the sales shop to sell these handicras. In turn, they were carried abroad and helped spread the word about the human rights crisis in Chile, because foreign media coverage was closely monitored and word-of- mouth was the only way to denounce the abuses. During one of the site visits by a delegation of U.S. lawyers, one delegate asked to see the sewing workshop (taller) where the arpilleras were assembled (even though they were artisan and single-seamstress projects, women would oen sew together to talk about their pending cases with the judicial system, and console each other for their losses). As Patricio tells the story, one thing led to another, and the U.S. visitor saw a beautiful dress being sewn by one of the seamstresses. She quickly purchased five girls’ dresses for the upcoming Easter holiday, and continued to pick up small orders as she returned to Chile over the next few years.
3e elimination of leist political governments by military overthrew in the Southern Cone (Argentina, Brazil, Chile, and Uruguay) of Latin America in the 1960s and 1970s can be conceptualized as the implementation of bureaucratic-authoritarianism (BA) regimes (O’Donnell et al; Linz and Stepan 1996; Scarpaci 1988). BA governments view progressive le-wing economic (though democratically elected) administrations as a type of cancer attacking the national body. As military officers trained in strategic management, decision making, and engineering, their objectives were to replace the demand-making bodies of civil society with decision rules that were allegedly more objective. Drawing on articles in national constitutions, they were able to justify their intervention based on emergency needs or to attack foreign “bodies” (e.g., international communist parties and linkages). Unabashedly free-marketers, they set out to dismantle welfare state programs (called Ibañismo in Chile, peronismo in Argentina, and batllismo in Uruguay). Need, poverty, prices, and other matters of governance were quantified whenever possible, and a strong faith was placed in the invisible forces of the market (Finch, 1989; Prezworksi 1992). 82 Journal of Ethics & Entrepreneurship
By 1978, it became apparent to the U.S. lawyer that there was a demand for these high quality, low-price garments, and she contacted high-end stores in Manhattan. Patricio learned that similar demand existed in London and Paris, and by 1979, he and four seamstresses who he considered to be “practically family,” began producing about 50 garments a month. Exporting was easy since the lightweight garments could easily fit into a single suitcase, or amidst other clothes, bypassing the eyes of customs agents at Santiago’s airport and in Europe and the U.S. When tourists would find the shop, he knew the customs regulations for many countries; 50 garments could be carried duty-free into the US and his seamstresses helped him secure appropriate materials for the increased orders. He had to rely on trusted B2B providers to prevent jealous neighbors from going to the authorities because he lacked export papers or avoided tax payments. Production styles changed about once a year as purchases were made by buyers. By the late 1980s, the introduction of the FAX machine allowed for up-to-date changes in fabrics, collars, slips, and embroidery to be changed quickly based on the tastes of the foreign buyers. When I first met Patricio in 1989, he had business cards that displayed his phone number (which in turn, revealed a prefix that was specific only to cell phones; a novelty in Chile and in many corners of the world at the time). By 1992, he added five additional seamstresses—all close family friends who had endured hardships under the dictatorship- and was able to add custom labels based on the shop owner’s brand in New York, London and Paris. Patricio used the 1980s to share aspects of his clothing operation with members of the human rights community. For example, because of his social mission and ethics, he hired mothers, sisters, or daughters of missing or detained individuals as seamstresses; all part of the compadrazgo network prevalent in his Catholic Chilean community. e scraps cut for the bolts of cloth were given gratis to the vicariate so the arpillera sewers could add rich textures to their embroidered appliqués. A textile factory owner who sympathized with Patricio politically gave him discount prices on selected bolts of fabrics such as bright rayon, corduroy, velvet, and other materials that were being phased out. When buyers came to his shop in the northern Santiago suburb of Conchalí, he would make sure they got business cards to the vicariates’ showroom in downtown Santiago. In turn, the vicariate made sure that the human rights tourists received a business card (with a road map and taxi telephone number on the back, in both English and French) that showcased Patricio’s dresses. Word-of-mouth advertising helped to expand a B2B operation to B2C. e Conchalí neighborhood where Patricio was raised and worked was originally a squatter settlement when it was settled in the early 1960s. By the 1980s, it had gradually become upgraded with sewers, streetlights, and nearby police and fire houses. By all outward appearances, it was a modest working-class neighborhood by Chilean standards, and Patricio was a strong supporter of local charities: firemen, a Spanish benevolent society, and playground equipment for a vacant lot that the county had designated as a park. “is community has been good to me; these are my people. I’m lucky to be alive, so it’s good to give back.” is business ethic guides his work.
Case #2. a Cuban pizzeria Entrepreneurship in Cuba has undergone substantial changes since the beginning of the post-Soviet era around 1991. New opportunities arose for Cuban entrepreneurs, with developments such as the decriminalization of the dollar and more incentives to attract foreign investment through joint ventures (CEPAL, 1997; Pérez-López, 1994; Pérez- Scarpaci 83
López, 1995). Peters and Scarpaci’s work in 1998 provided the first systematic account of entrepreneurs’ experiences in this new realm of limited small-business activity and inspired a spate of work on the vicissitudes of these new workers’ entrepreneurial actions (e.g., Ellinson, 1999; Cruz and Villamil, 2000; Trumbull, 2001; Henken, 2002; Scarpaci, 2002; Osborn and Wenger, 2005; Phillips, 2007). is literature highlights obstacles for these self-employed workers, where the state still looms large over entrepreneurial activity in Cuba. us, the movement away from the Soviet influence seemed to simultaneously liberalize and tighten the regulatory environment in which Cuban entrepreneurs operate (Pérez-López, 1995, Frank, 2010; González-Coro and Larson 2007; Gordon 1976; Gott 2010). In official circles in Cuba, the “non-state” (e.g., private) narrative continues to be about “perfecting socialism” (Zawadski, 2009), but ordinary entrepreneurs realize the state has no choice. e term “Special Period” (or Special Period in a Time of Peace, “El período especial en el tiempo de paz”) was a term coined by Fidel Castro in 1993 to refer to the draconian cutbacks caused by the loss of favorable terms of trade when the Soviet-bloc trading group, the Council for Mutual Economic Assistance (CMEA, or Comecon, founded in 1949) dissolved. Self-employment quickly disappeared in the first decade of the Cuban revolution as the state began controlling the principal means of production such as sugar mills, transportation lines, shipping and airlines, textiles, pharmaceuticals, and food processing. Although almost all workers have been tethered to public-sector employment since the early 1960s, a small number of workers were granted permission by the communist government to ply their trades. Professions such as locksmiths, beauticians, upholsterers, and other single-worker enterprises characterized much of the work force allowed to work outside the public realm. As noted earlier, though, the legalization of the dollar in 1993 moved in tandem with liberalizing work laws (Scarpaci, 1995). By 1996, the government reported approximately 200,000 workers (not quite 2 per cent of the labour force in Cuba) as cuentapropistas (self-employed workers, or those “who work for their own account;” trabajan por cuenta propia in Spanish). By 2007, the figure hovered around 150,000. e more popular of these trades included home restaurants, cobblers, beauticians, bicycle-taxi drivers, lighter re-fuelers, confectionary and juice vendors, and artists (Scarpaci et al., 2002). In early 2013, approximately 605,000 workers are licensed to work in the private sector (ONE 2013). Vladimir (pseudonym) was 20 years old when he began working for the Cuban housing ministry. He began as a laborer but gradually worked his way up to foreman and master mason (maestro albañil). He was 24 years old when the so-called Special Period came to be. By 1995, new construction was so sporadic that Vladimir was laid off. He was pleased to accept the layoff as he had seen neighbors who were working in these nascent private sector trades. at same year, he used a pile of construction scraps of wood and glass that he had been gathering over the years to build a more attractive façade on his suburban Havana home. He converted his living room into the seating area; abiding by the law, he had only three tables with four chairs each, giving him the allowable 12-seat maximum. e rest of the materials were used to build a bar-like high counter that served as a transition from his kitchen to the front dining room. e regulatory environment for workers like Vladimir has always been convoluted. Essentially, small businesses were outlawed in Cuba until 1993, presumably because a nascent petite bourgeoisie threatens the socialist system. Home restaurants, for instance, 84 Journal of Ethics & Entrepreneurship
can only employ family members but the number of place settings was limited to just 12 (though reforms in 2010 increased the number to 18, and then to 50 in 2011). He knows that certain foods such as lobster and beef were prohibited from sale in these home restaurants; they were designed for sale in state-run restaurants where handsome profits can be had. (In 2011, all such restaurants had these restrictions lied but this was aer the field research). However, lookouts outside his restaurant alert him when state inspectors approach. is gives him time to rid the premises of non-familial labour and illegal foods. A lobster dinner, for instance, ranges between the equivalent of $20-30 USD in most state or joint-venture restaurants, but can be had for under $10 USD in most home restaurants or paladares. Vladimir promotes a lobster thermadore dish with rice and salad for $11 USD. Regulating beef production is also perplexing. Beef (carne de res) never appears on the state ration list of food items. Instead, it can be purchased in pesos at agricultural markets (mercados agroprecuarios), but a pound can equal a week’s wages for state workers. Vladimir is one of the few pizza makers who tops his pizza with strips of beef, an idea he gleaned from a foreign film shown on national television (e.g., meat-lovers pizza). 4 Most paladares, however, employ outside (non-family) laborers and maintain a “look- out” of sorts that alerts the operation when state inspectors are nearby. If inspectors arrive, beef and lobster are hidden and oen tossed over to a neighbor’s property or balcony. Operating a paladar, like all self-employment in Cuba, requires paying monthly licensure fees to the county (169 of them island-wide) by the first of the month. Each county has a matrix of prices based on whether the self-employer charges in pesos or in hard currency (today called CUCs or convertible currency units). In the case of restaurants, if Vladimir wishes to serve alcohol, then a hey alcohol license is added to his monthly fees. His home restaurant in Plaza Municipality in Havana caters largely to tourists, and his charging in hard currency and serving alcohol requires a payment equivalent of $800 USD before he opens his doors on the first of each month. A friend of his charges only in Cuban pesos in the same county, and pays only 400 pesos monthly (about $8 USD). County authorities can permanently withdraw a business license if any self-employed worker fails to pay for a monthly fee on time; there is no guarantee that the state will allow re-entry into the market. Vladimir prefers to play on the safe side and pays the expensive alcohol and hard currency fees. Seasonal work related to peak tourist arrival months are particularly vulnerable in this regard and Vladimir is affected by this fluctuation. Like other private sector operators such as bed-and-breakfast establishments, restaurants, bicycle-taxi operators, and related ancillary services, Vladimir must “weather” the lean low season, and continue to pay licensure fees during the off-season. ere is no guarantee that simply shutting down in the low season that he will be able to get licensure approval when the high season returns. e state keeps Vladimir and others like him paying, with little transparency about licensure decisions. In short, entry and exit into the marketplace are complex for Cuban entrepreneurs.
4Control over beef is even more perplexing in the countryside. Ranchers can raise cattle for milk, but when the animal dies, the police must be called to document the event. e animal is taken away to the local slaughterhouse and the meat and leather become property of the state. If a rancher loses a head of cattle to a rustler because of extreme negligence or collision with thieves, he/she can be sanctioned up to seven years in prison, whereas the sentencing for an apprehended cattle rustler is just three years. Such are the Orwellian tales of private enterprise on the island. Scarpaci 85
Inspectors join this cat-and-mouse game by trying to “catch” the restaurants charging in hard currencies when they are not licensed to do so. My field work and in-depth interviews with cuentapropistas in 1998 and 2008 show that corruption and bribery are not major impediments for restaurateurs. Havana used to boast 600 such eateries in the 1990s: Cuban authorities stopped issuing licenses for new ones, reversed that decision in the mid- 2000s, but the total number of paladares has been drastically reduced. e logic of these policy shis comes from officials of Cuba's Tourism Ministry, who argue that it is unfair for the state to spend millions to attract international visitors only to be undercut by smaller, private firms. Elsewhere in the private-sector realm it is safe to conclude that activities that don't compete with the state, such as selling snacks, patching tires or fixing bicycles—all conducted with Cuban currency—are less restricted, though hardly encouraged (Newman 2001; González-Corzo and Larson, 2007). Vladimir’s struggle to be a successful entrepreneur in a highly regulated economy means looking for creative ways to survive minimally, as do millions of others (Rosenberg-Weinreb 2009). Entrepreneur Vladimir treads this ethical line carefully, one that straddles illegality and what other settings would be considered normal business practices. He is constrained by not being able to 1.) Buy in bulk, 2.) Get most of his ingredients from anyone other than the state, 3.) Contest inspectors whose on-the-spot assessment specify how many receipts he should have to justify the production of pizzas he is selling (and therefore not buying ingredients on the black market or stealing from government restaurants). Unlike his Chilean counterpart, Patricio, Vladimir was not reared in a Catholic-imbued culture because the Cuban revolution frowned upon religious practices up until 1992, when it formally modified its constitution to allow freedom of worship. However, nearly four hundreds years of Spanish culture and three and half centuries of African slavery created important reciprocity networks. Fictive kinship (compadrazgo) is too a part of Cuban society although it has lacked the Catholic affiliation found more broadly in the region. e Cuban scholar Fernando Ortíz revived the indelible role that African culture brought to Cuba back in the 1930s. From hiding African religions behind the veil of Roman Catholicism (a practice called syncretism), to developing support networks of plantation slaves working in the homes of masters, and those freed slaves, Cuba’s reciprocity networks are well developed. And while the terms of calling non-family members “aunts and uncles” has disappeared because of its Catholic and bourgeois histories, a new term has arisen during the socialist realm: the buddy system or “socio” (León 1995; Haddad 2003). is playful term, part of Cuban street humor (called choteo), is explained by León as drawing partly on the traditional work for business partner (socio) but is also a tongue-in-cheek reference to the word for socialism (socialism). León first observed its usage in the 1990s and playfully coined it as “buddyism” (or socio-lismo). In Cuba today, one seeks out a socio (male) or social (female) to “solve problems” (resolver los problemas) (see also Colantonio and Porter 2006; Blue 2004; Otero and O’Brian 2002). Vladimir must maintain good relationships with everyone: inspectors, neighbors, suppliers, and the local neighborhood watchdog group, the Committee for the Defense of the Revolution (CDR). He sees his CDR several ways. At first, he tells me, he had a very pragmatic view of business: get ingredients, sell as many pizzas as possible, and turn a profit. Aer 10 years in business, his attitude began to change. He remarked that people began to look up to him and to rely on him as a “socio.” At first, he thought, people would 86 Journal of Ethics & Entrepreneurship
come to his restaurant, lounge around without buying little more than a soda or beer, because they were looking for something free. Later, he began providing some small loans ($10 to $30 USD) to people he knew and trusted; a classic example of neighborhood trust and respect because of the sensitive nature of indebtedness plays in Latin culture (Lomnitz 1988), especially one crawling out from under the labyrinth of socialism As the business grew, he found himself bringing pizza to sick school children or elderly pensioners who ran out of food at the end of the month. He never charged interest on his loans, and never forced repayment. Vladimir is not a religious man, but he told me in 2010 that “it was the right thing to do; that and not getting arrested for dangerousness (peligrosidad) or illicit enrichment (enriquicmiento iílcito)” charges that were easy for police and inspectors to impose, and hard for anyone to defend themselves against. “My good works,” he tells me, “may have kept me out of trouble, but in my heart, I know I must do the right thing” (hacer lo correcto). Beyond this Creole style of CSR, Vladimir knows how to stay under the radar. In 2006, when his business had really taken off, he told me ‘as long as my gold chains stay under my shirt and [are] not shining in the tropical sun, I can trod along with minimal hassle from my neighbors and inspectors. Vulgar displays of sudden wealth (called guapería in Cuban parlance) quickly arouse the suspicions of state authorities. is resonates with Farid’s (2007) finding about entrepreneurs in Islamic Egypt: “Money is both good as a symbol/terminal value and as a means/instrumental value in that individuals associate money with power and status, feelings of happiness, wealth and respect from others, and achievement and success within the society.” Budding entrepreneurship for Vladimir and other Cubans is a balancing act between material success and culturally defined ostentatious displays. ere is a social expectation that he share his good fortune among his own reciprocal networks. In Castro’s Cuba, sharing wealth either tangibly or intangibly among neighbors and engaging in neighborhood activities sponsored by the Committee for the Defense of the Revolution (CDR) is a good business practice. He describes his interactions with the CDR this way: “We don’t have a chamber of commerce (cámara de comercio) like in your country, or like before the Revolution. So my lobbying is the local CDR.” is implies attending meetings and occasionally volunteering for all-night vigilant shis in front of state stores (that are oen targeted by burglars); behaviors that other self- employed workers also reported Peters and Scarpaci (1998). DiSCuSSioN ese cases tell the story of small –scale CSR development –or networks of reciprocity – with two entrepreneurs, thousands of miles and decades apart, which struggle to build profitable businesses in difficult circumstances. What do they tell us about ethics and entrepreneurship in two striking emerging economies in the western hemisphere? Macro- economic and political forces changed the course of the Chilean and Cuban entrepreneurs. Adversity –economic, political and personal –spurred their search for a new livelihood. Patricio started out working and volunteering for a non-profit organization and drew on fictive kinship relationships to do so, whereas Vladimir had never been exposed to nonprofit organizations because they are absent in Cuba. Material and civil liberty crises in the Cuban and Chilean cases, respectively, imbued both of them in marketing management and charting paths with ethical compasses. Scarpaci 87
table 5. morality and Business Behaviors morality level & Chilean haute couture Cuba pizzeria definition 5 preconventional: Cutbacks in public jobs Downsizing of state housing rudimentary; calculating and programs force entrepreneur ministry forces him into even selfish. Response to into clandestine, informal underground pizza operation immediate rewards or operation. Police ‘arrest’ to make ends meet. Kitchen punishments record in human rights not subject to food movement makes it hard to inspections by authorities. find formal-sector work. Word-of-mouth advertising Word-of-mouth advertising prevails. prevails.
Conventional: Registers business with local Registers business with local Shis from self-centered tax authorities despite the tax and health authorities perspective to what the requirement to pay taxes on despite the requirement to broader society expects. business. Legality allows firm pay taxes on business. New Obedience to society or to advertise by pamphlet and legal status allows him to organization is paramount. in phone directory without post (and pay additional tax Marketers mainly concerned retribution. Registers workers for) one sign outside his about legality of proposed with Labor Ministry and business. Presents legal state- action others’ perception of willingly pays part of health- store only sales receipts to it. care and retirement costs. document purchase of flour, salt, spices, and yeast. postconventional: Devotes 2% of profits for Provides start-up capital with Reflects the morality of the human rights’ survivors’ and zero interest to local solo mature adult. Marketers are widowers’ pension funds. entrepreneurs and to less concerned about what Sells dresses at discount rates cooperative selling high- others believe about the to nonprofit national quality tomatoes. firm, and more about how organizations to provide they assess themselves over work for unemployed female the long term. household heads.
5Source: Stevens (1979) e maturation of their moral positioning vis á vis the broader community parallels what Stevens (1979) calls preconventional, conventional and postconventional levels of morality (Table 5). In the early phase, concerns and responses to the formal business environment are myopic. In the conventional stage, both firms are legally recognized and their interactions with stakeholders (local authorities, neighbors, and workers) have cast them into a different light; their leadership positions place in the eye of the public. Where the Chilean and Cuban cases depart from Stevens model based on the advanced capitalist nations, is the roles of fictive kinship and networks of reciprocity. As the firms mature so do the levels of morality that shape their business behaviors. Patricio seeks out nonprofits and sells to them at discounted rates, while Vladimir selectively lends money, not in a loan- 88 Journal of Ethics & Entrepreneurship
sharking fashion, but to those in need. at these levels of morality move in tandem with the evolution of their businesses is not a causal relationship. Indeed, Stevens (1979) makes it clear that the process is neither linear nor one of causation. Yet the haute couture discounting to Chilean nonprofits and the pizzeria’s steady business with tomato cooperatives have changed lives in ways far beyond the core competencies of these two enterprises.
CoNCluSioN Milton Friedman, an economist not known for championing regulation of any sorts, once remarked: “If business people do have a social responsibility other than making maximum profits for shareholders, how are they to know what it is?” (Cited in Lamb, Hair and McDaniel 2012, 88). e Nobel laureate surely did not have the management strategies of Patricio the fashion designer or Vladimir the pizza maker in mind when he posed the question. e two men discussed in this paper did not have many shareholders, but they relied on key stakeholders. In this paper I have argued that this small-scale corporate social responsibility in Chile and Cuba stem from a long history of networks of reciprocity. Both men were radically transformed in direct opposition to antithetical political economies in which their businesses operated, neither of which ever delivered the promises of equality and well-being. Chilean Patricio continues his activities in leist politics, while Cuban Vladimir—like many Cubans—has become apathetic politically. Over time, their efforts to directly and indirectly share the benefits of their operations placated authorities and earned them goodwill with local customers and neighbors. Patricio and Vladimir will not gain insight into their businesses by following leads from Milan’s fashionistas or Tokyo’s schoolgirls. eir foci on strengthening core competencies, behaving ethically, and doing the right thing have generated profits and, as Hammond and Prahalad (2004, 30) argue, are incremental steps in developing-world entrepreneurship: “To reach [the poor, entrepreneurs] must shed old concepts of marketing, distribution, and research. Getting it right can both generate big profits and help end economic isolation throughout the developing world.” However, at no point in our fieldwork did these entrepreneurs correlate money with wellbeing (bienestar; see Sirgy and Lee 2008). As their businesses evolved from nascent to established practices, parallel changes were also evident in their ethical behaviors and the development of their small-scale CSR. e striking change from “staying under the radar” to reaching out to numerous stakeholders is telling. It implies that neither the size of the firm nor the magnitude of sales condition the seeming acts of altruism described here. Hiring victims of human rights abuses in Chile, or providing pizza for the elderly or infirm in Cuba, probably added little value to the marketing mix of these entrepreneurs. Milton Friedman would have probably wanted an empirical metric to indicate at what point in these businesses practices did the notion to do the right thing appear. And unlike many start-up businesses in Asia, Africa and Latin America (Lee and Jones 2008), no bi or multi-lateral agencies such as the United States Agency for International Development, World Bank, International Monetary Fund, United Nations Development Program, European Bank for Reconstruction and Development, or the Inter-American Development Bank were involved in these enterprises. CSR in Latin America is unevenly practiced and remains in embryonic stages in most countries. Scarpaci 89
However, signs of change are in sight. e Cuban government’s announcement in October 2010 about downsizing nearly half a million state workers (in a nation of 11 million total residents) implies that small and medium enterprises could provide a potentially critical employment option for the Cuban economy, which is undergoing considerable structural change. Optimistically, the emergence of grassroots capitalism in Cuba is not only consistent with, but also supportive of, the decentralization of economic and political power. Vladimir will likely serve as a source of knowledge, goodwill, and informal mentor for budding entrepreneurs. However, it will likely have to be “packaged and announced” as consistent with the Revolution’s goals, at least while the Castro brothers live. And even though Chile is no longer a “developing nation” besieged by human rights problems and their attendant sympathizers, Patricio was able to adjust to market conditions and provide a niche in his country of 15 million. We are reminded in this study of ethics and entrepreneurship of these tiny enterprises by the remarks of former British Prime Minister, Gordon Brown. In his post-office publication, Beyond the Crash, he assesses the reasons for the economic crisis that prevailed globally from 2006-2010. He argues for a new kind of market, one that has morals (Brown 2010, 236). While not the first student of economics to make that claim, it would seem that these two entrepreneurs from the Global South offer something to reflect upon in assessing this debate. Support from fictive kinship and reciprocity networks give small businesses the moral standing, social capital, and neighborhood-based legitimacy to operate, independent of the legal statues in each country. Intangibles such as these have been lost in the macro-economic histories recounted about the so-called Chilean miracle, or Cuba’s transition from socialism. is paper supports Lomnitz’s (1988) contention that informal exchanges are not always illegal and play an undervalued role in supporting nascent market economies. Pinochet’s bureaucratic-authoritarianism and Castro’s socialism shaped these entrepreneurial experiences and their attendant acts of social responsibility in unanticipated ways, leading entrepreneurs to follow a culturally-defined moral compass and to “do the right thing.”
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aBout tHE EDitorS of tHE JourNal of EtHiCS & E NtrEprENEurSHip
Dr. D oNalD w. C auDill is a Professor of Marketing in the Broyhill School of Management in the Godbold School of Business at Gardner-Webb University in Boiling Springs, North Carolina. Previously, Dr. Caudill was a Professor of Business and Leadership and Chair of Marketing, Management and Leadership, and E-Business and Entrepreneurship at Bluefield College in Virginia and a Professor of Marketing and Director of the Appalachian Leadership and Entrepreneurial Center at Bluefield State College in West Virginia. He was also an Associate Professor of Marketing and Honors Professor at Belmont University in Nashville, Tennessee. Dr. Caudill served as an Assistant Professor of Marketing at Southern Arkansas University, the University of North Alabama and the University of Tennessee at Martin. He began his teaching career as an Instructor of Marketing at Virginia Polytechnic Institute and State University in 1981. Dr. Caudill was a member of the graduate faculty in the Jack C. Massey Graduate School of Business at Belmont University, and has taught classes via satellite (distance learning) for West Virginia Graduate College, evening, weekend, and online graduate courses for Averett University, the University of Tennessee at Knoxville and Mountain State University (WV). In addition to 31 years of teaching at the university level, Dr. Caudill has worked in selling, retail management, and marketing research. He also has owned and managed several entrepreneurial businesses including a small advertising agency. A Virginia native, Dr. Caudill has a B.S. degree in Business Administration from Berea College (Kentucky), an M.B.A. from Morehead State University (Kentucky), an M.S. in marketing from the University of Memphis (Tennessee), and a Ph.D. from Virginia Polytechnic Institute and State University. He is a member of Pinnacle, Phi Eta Sigma, Delta Mu Delta and Sigma Beta Delta academic honor societies and e Gamma Beta Phi Society and Alpha Kappa Psi. Dr. Caudill has had nearly 100 articles published in professional journals and trade publications and has presented over 50 papers at conferences (and won Best Paper Awards). He has authored four seminar manuals and several business/leadership book manuscripts. Dr. Caudill’s research has been cited in textbooks and in numerous referred journals. He has been interviewed for several newspaper and magazine articles and on radio and television talk shows. Dr. Caudill has been a consultant for small and large businesses and a workshop leader and speaker at state, regional, and national conferences and conventions. Dr. Caudill won both the Godbold School of Business (2010) and the University (2011) Research Awards. He also won the President’s Award for Community Engagement (2012). Dr. Caudill has been on the editorial review boards of numerous journals. He is or has been a member of the United States Association for Small Business and Entrepreneurship, the American Marketing Association, the Association of Consumer Research, the Academy of Marketing Science (a Fellow), and numerous other organizations. He is a frequent conference presenter, paper reviewer, discussant, session chair and panelist. 98 Journal of Ethics & Entrepreneurship
Dr. Caudill is a former American Marketing Association Hugh G. Wales National Faculty Advisor of the Year, a life member of Pi Sigma Epsilon (National Fraternity in Marketing, Sales Management and Selling) and Sigma Pi (Social) Fraternity, and the winner of the Higginbotham Award for Outstanding Service. He has been named Who’s Who in Advertising, Who’s Who in the South and Southwest, Who’s Who Among American Teachers, Who’s Who Among Emerging Leaders of the World, Who’s Who in American Education, Who’s Who Among Young Professionals, and twice selected as an Outstanding Young Man of America. Dr. Caudill has traveled throughout the United States and studied marketing in numerous foreign countries including Canada, e Bahamas, Aruba, Mexico, Belize, Honduras, Brazil, Argentina, Paraguay, France, Israel, Italy, Germany, Switzerland, Austria, England, Greece, Spain, Australia, Hong Kong and China. Dr. Caudill was a Visiting Advertising Professor to Fitzgerald and Company in Atlanta, GA and served an internship at Wisdom Media. He has been an advisor to Phi Beta Lambda and is a Sam Walton Fellow of Students in Free Enterprise (SIFE). His students have won numerous awards and honors.
JamES E. l ittlEfiElD is Emeritus Professor of Marketing at Virginia Tech in Blacksburg, VA. Jim retired aer 28 years at Virginia Tech and 18 years at the University of North Carolina at Chapel Hill. He served as Department Head at each institution. He is the author or coauthor of eight books and numerous research articles in marketing and international marketing. Much of Jim’s career was spent abroad, having lived, researched, and taught in four countries and traveled in 70 countries. A major activity was developing and taking students on study abroad programs to Switzerland and other places in Europe, China, Vietnam, Cambodia, and other parts of Asia, and Chile. His industrial experience was with General Motors in Detroit, the B.F. Goodrich Company in Akron, and numerous consulting assignments in the U.S. and abroad. 99
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