Cuba loosens restrictions on private enterprise

Cuba loosens restrictions on private enterprise
By Girish Gupta, for USA TODAY

"I still remember the gunfire," Ramos, 64, said, referring to the
failed, CIA-backed invasion by Cuban exiles to depose the regime of
Fidel Castro in 1961.

Ramos and others like him are taking part in a decidedly capitalistic
change in Cuba in which the communist rulers have relaxed state control
of the economy to generate wealth. Results appear mixed because of high
taxes on profits and restrictions on economic freedoms that could lead
to demands for political liberties.

Ramos is happy about the changes. The tables, chairs and kitchen of the
restaurant atop his house were bought using $5,000 worth of remittances,
or cash that the family gets from relatives in the USA.

"It's definitely worth paying the taxes to the government because we're
earning more money," he said, admiring both the view and the fish caught
yards away that lay grilled on the plates of diners. "Everyone's pleased
the government has allowed this."

Private restaurants such as this are known as paladares. They first
appeared in the early 1990s soon after the Soviet Union collapsed,
taking with it the financial aid and subsidized fuel that propped up the
Cuban economy.

The private restaurants in people's homes were permitted grudgingly by
the Castro government to help Cubans contend with the poor economy,
which has for decades been subjected to a rigid socialist state that
forbids private enterprise.

After an ailing Fidel stepped back from power in 2006, his brother and
now president, Raúl Castro, slowly began to relax state controls on
commerce. Political repression and denial of rights of speech remain
intact, but in an attempt at a China-style system, Raúl has tried to
encourage a private sector. Cuba began by cutting more than 20% of the
government-employed workforce, which was largely relegated to phantom
jobs to make the claim that Cuba's social model created 100% employment.
Castro allowed for an increased number of cuentapropista, or
self-employment licenses, to spur more small businesses.

The licenses come with fixed amounts of taxes, regardless of the profits
made, and restrictions on how many people can be hired.

Only enterprises that hire unskilled workers, such as restaurants and
street vendors, are eligible for the licenses. Professionals such as
doctors and architects are banned from expanding their practices.

Raúl Castro defended the pace of the changes, saying, "It is proceeding
without haste, so that we don't make new mistakes."

There have been some noticeable changes. Farmers have been able to lease
government land, and Cubans can buy and sell cars and property. Private
guesthouses, normally a spare room in someone's house that tourists can
rent for the night, are found all over Havana.

One license-holder who was popping and bagging popcorn for sale on the
street said the changes are not without problems. He said he rents out a
room in his home, but more than half of the $20-a-night he charges must
go to the government even if the room is vacant.

"The state earns more money from my business than I do," he said, asking
that his name not be published for fear of reprisal from the government.

The Cuban government says the level of taxation is necessary to
subsidize health care, education and telephone, electricity and water
services. Cuban economist Oscar Espinosa Chepe said the taxes are so
high that only the tiniest of enterprises can form.

"The reforms are not sufficient; they could be done much quicker," he
said. "This government is trying to give the impression that it's
changing, but the country is on the edge of a cliff."

Few newer-model cars are seen on the streets of Havana, shelves of
stores are bereft of goods and shortages of food are common. Still,
driving a taxi or running a guesthouse can be lucrative compared with
surviving on state salaries alone.

Payments to private enterprises are made not with the low-value Cuban
peso that public employees receive but the Cuban convertible peso, a
currency roughly equivalent to the U.S. dollar. Given that the average
wage in Cuba is $18 a month, the Cubans who are licensed to run a
business are creating an inversion of social norms in the country,
Espinosa says.

"A porter in a hotel or a taxi driver can earn more than a Cuban
doctor," he said. "And they have a grandiose view of themselves. It's a
joke."

Espinosa worries that none of the economic changes will survive should
Cuba lose the patronage of Venezuelan President Hugo Chávez, who has
used his nation's oil wealth to replace the Soviet Union as Cuba's
benefactor.

Espinosa says even the catastrophic loss of welfare from Venezuela would
not prompt the Castros to open the economy in full fashion.

"The problem is that the government is scared," said Espinosa, who was
imprisoned in 2003 for 18 months for allegedly receiving money from
abroad and possessing newspaper clippings about meetings between
representatives of the United States and Cuban dissidents. "They know
that economic freedom is linked to political freedom."

http://www.usatoday.com/news/world/story/2012-06-07/cuba-economy-castro/55448580/1