In Cuba, baby steps on the long road to economic reform

Posted on Sunday, 04.15.12

In Cuba, baby steps on the long road to economic reform
By Kevin G. Hall
McClatchy Newspapers

HOLGUIN, Cuba_ Sergio Luis Suarez, 24, is among the new faces of
Cuba's budding business class. He used to cut hair for profit before
it was legal, but now he's licensed by the government and has
transformed the front of his mother's apartment into a makeshift
salon. His monthly profit: about $25, at 50 cents a cut.

Yaceli Hidalgo is another. She opened a small restaurant, using as
start-up money nearly $4,000 sent by relatives in Italy. In this
eastern city, hers is one of 19 such establishments, known in Spanish
as "paladares," catering primarily to tourists and European retirees
who spend part of the year in Cuba. Business is good enough that her
restaurant's stayed open 14 months.

All across Cuba, there are legions like Suarez and Hidalgo —
entrepreneurs striking out on their own as locksmiths, plumbers,
electricians and the like. They've always existed, but operated on a
smaller scale, illegally, in the informal economy.

"I can make more money," Suarez explains, comparing his take with the
official government monthly salary of $20.

In the past 24 months, Cuba's communist government has announced a
series of economic openings intended to ease its announced plan to
trim the country's bloated government by 1 million jobs and to buy
time as the country transitions away from the reign of two aging
Castro brothers who've ruled since 1959 but now are both in their 80s.

The reforms include expanded self-employment, a liberalization of
rules surrounding family-run restaurants, greater flexibility for
Cuban farmers to sell their products and even creation of fledgling
real estate markets in big cities such as Havana and Santiago.

Most of the 181 newly allowed self-employment categories involve
menial labor and services that are most relevant in urban areas —
beauty salons, barber shops, plumbers and the like. By the
government's count, it's already granted 371,000 licenses.

The reforms, however, remain far from anything resembling free-market
capitalism. Tellingly, not included among the openings are medicine,
scientific research and a range of technical jobs that the government
has kept under its control. There are no wholesale businesses to
provide goods and services to the expanding class of entrepreneurs.

Programs to learn how to run a business also are rare, though the
Roman Catholic Church now offers business-training programs in Havana.
There are no trade or vocational schools to speak of. Capital for
farming is all but non-existent.

Nevertheless, a week of interviews across the island, conducted by
McClatchy during the recent visit of Pope Benedict XVI, indicates that
Cubans welcome the change. However, many remain wary, mindful that a
similar opening 20 years ago snapped shut when the economic crisis
engendered by the 1991 collapse of the Soviet Union was overcome.

Among the complaints is the cut the government takes from their
now-legal earnings — something that might feel familiar to an American
at tax time.

Hidalgo pays taxes every month to the government and is unhappy that
at the end of the year a government auditor pores over her receipts
and then gives her an additional tax bill.

"You pay all year. Why do they do it to us (again) at the end of the
year?" she complained.

But her biggest challenge is the lack of any wholesale market that
caters to restaurants. To ensure she has food to serve, she must stand
in line with ordinary Cubans doing their shopping, often crossing her
city in search of items that invariably have run out.

"You have to walk the entire city looking for that one thing you
need," Hidalgo said.

Unsurprisingly in a country now in its 54th year of communist
revolution, entrepreneurship is a novel concept and business knowledge
is rudimentary.

Angela, who like many Cubans interviewed for this story requested that
her surname be withheld, works at a family-run restaurant in Camaguey
in central Cuba. When asked how her business turns a profit, she at
first struggled to answer, then finally explained, "I charge more than
what I bought it for."

If that seems obvious, it isn't for ordinary Cubans. For most of the
past 50 years, they haven't known sole proprietorship or private
initiative. Her simplistic knowledge of business speaks to how long
the road to economic health is for Cuba. Its per person purchasing
power ranks 111th out of the world's 195 economies — though that's
still ahead of 12 other countries in the Western Hemisphere, all of
which have market economies.

Capitalism was anathema to Fidel Castro, the geriatric founder of the
modern Cuban state who turned rule over to his brother temporarily in
2006 as his health failed and then permanently in 2008, when it became
obvious he would never regain the vitality needed to be a head of
state.

Fidel Castro nationalized foreign companies and all private property
decades ago. For most of his rule, the country favored collective
farming and state enterprises that became icons of inefficiency. It
took in billions in subsidies from the Soviet Union, which bought the
country's sugar at prices far above going world rates.

After the Soviet Union collapsed, Cuba opened to joint ventures in
tourism, a move that brought significant amounts of foreign currency.

But it did nothing for the farming sector, and other than tobacco and
its famed cigars, Cuba, once a major provider of the world's sugar, is
no longer a significant exporter of agricultural goods. Several
farmers with whom McClatchy spoke complained that there still was no
money for modern machinery or fertilizer needed to grow and harvest
crops.

Yaime, a farmer from near Bayamo in eastern Cuba, complained that the
state had required him to raise pigs as part of an effort to boost
food production, but after their slaughter had not paid him for months
so that he could raise new swine. Things are not getting better, he
said.

Cutting a second harvest of tobacco near Vinales, southwest of Havana,
farmers Osmani Duarte, 45, and Antolin Perez Diaz, 63, chuckled when
asked what's changed for them.

"Nothing," they responded, noting that tobacco remains a state crop
and source of needed foreign earnings. The price they earn from the
government remains fairly constant but they aren't sharing the
profits, they said.

Ariel, a career farmer in central Cuba, said there have been some
reforms that give farmers more control of their crops and whom they
can sell to. It's meant direct sales to the tourism sector and greater
access to previously untilled land.

Even with the changes, Cuba is unlikely to look like any of its
free-market Latin American neighbors anytime soon. Raul Castro made
that clear in a speech he gave a year ago unveiling the reforms at the
6th Congress of the Cuban Communist Party — the first such congress
the party had held in 13 years.

He criticized the Cuban system, particularly the system of rationing
food that over the years had become "an intolerable burden to the
economy and discouraged work." But he couldn't quite utter the words
"private sector" in announcing a shrinking role for the state.

"The growth of the non-public sector of the economy, far from an
alleged privatization of the social property as some theoreticians
would have us believe, is to become an active element facilitating the
construction of socialism in Cuba," the Cuban leader said, carefully
choosing "non-public sector" over "private sector."

That hesitancy colors Cubans' embrace of entrepreneurialism, recalling
the mid-1990s, when Fidel Castro reluctantly allowed the first
"paladares" as he tried to navigate the end of Soviet subsidies. There
were so many restrictions that most were forced to operate illegally
if they wanted to make money.

For example, pizzerias were permitted, but back then the government
rationed flour and individual citizens were not given enough to run a
restaurant. This led to purchases of flour on the black market, and
this flour was of a different color. It made it clear to any Cuban
that the restaurant was operating illegally.

Today, flour is sold openly and not on a black market, though the
possibility of a change of mind is always present.

Some U.S. officials believe what's taking place is being carefully
managed to lessen an inherent contradiction: the more the government
opens the economy, the more it embraces what it stood against for five
decades.

Adding to the uncertainty is the fact that the driver of the reforms
is Raul Castro, 80, who ran the Cuban armed forces for decades before
his ascent to the presidency. As army chief he turned to free-market
concepts to make the military self-sufficient in crops and parts
production. He's also placed military cronies in high places,
suggesting the openings are calculated with an eye toward just how
much liberalization can be tolerated.

"The military is really the economic engine of the country, so it's
done within what the military feels it can manage," said Vicki
Huddleston, a retired U.S. ambassador who ran the U.S. Interests
Section in Havana from 1999 to 2002. "You have no civil society (in
Cuba) is what it amounts to."

Another U.S. official currently involved in American policy toward the
island called the reforms "nibbling at the margins."

Still, for Cubans like the barber Suarez, it's all worth it, even if
he has to pay the government $12 to $15 a month for his license.

"I don't have to hide anymore," he said. "I can promote myself."

http://www.miamiherald.com/2012/04/15/v-fullstory/2750605/in-cuba-baby-steps-on-the-long.html