Cuba Business

Swimming Against the Tide

Posted May 16, 2003 by publisher in Cuba Business.

by Oscar Espinosa Chepe | [url=][/url] | Center for a free Cuba


Small businesses have been permitted in Cuba since 1993. They have been so successful that the government has come to see them as an economic and political threat. So now they are strictly regulated.

The fall of the Berlin Wall and the subsequent collapse of the Soviet bloc had a disastrous effect on the Cuban economy because it lost the huge subsidies it received from those countries over several decades. The regime was forced to make economic reforms it had long rejected.

One of the changes was to allow members of 157 professions — such as carpenters, masons, hairdressers and people preparing and selling food – to work independently of the state, which had until then been the country’s only employer.

The measure was limited right from the start and the biggest enterprises allowed are restaurants (called paladares) that people can set up in their own home, and these are restricted to 12 seats. Their restaurants are also not allowed to sell fish, seafood, beef and many other items unless bought with dollars from state-run shops, which means they are very expensive.

The other authorized independent activities are subject to heavy restrictions too. Hiring of salaried employees is banned, university graduates cannot be involved and individuals can only sell things they have made themselves, thus ruling out any division of labour. The lack of any wholesale suppliers means independent operators are forced to buy everything they need from state-owned shops in dollars.

Despite all the obstacles, many Cubans applied for licences to open such small businesses. By the end of 1995, more than 205,000 people were working this way, according to official figures. The trend has created new jobs and brought tax revenue for the state and improved services and consumer goods for the population. It has also helped shore up the little-valued Cuban peso.

This independent activity has greatly benefited Cubans, but the authorities have done everything they can to obstruct it and have managed to sharply reduce the number of people in the sector to only 109,502, according to official tax figures in mid-2000.

Small businesses have been discouraged and stifled by constantly increasing taxes and huge fines no-one can pay. Licences are cancelled for the slightest reason and restrictions and bans are continually imposed, creating a climate of total uncertainty. The authorities have also stopped issuing new permits to open small businesses such as transport, plumbing and making and selling food and hardware.

Sometimes the restrictions are due to the lack of skilled labour available to the state, since most workers prefer to work for themselves than for the government’s low wages. Such businesses embarrass the authorities politically because they are much more efficient and provide better quality goods and services than state firms do.

But the government’s main grudge against the small operators is that they encourage economic independence, which leads to greater political freedom. Faced with a choice between the efficiency of the independent workers and controlling the Cuban people, the regime prefers control, even if it increases shortages and difficulties for the population. The world’s major political, economic and social trends are of no importance. Maintaining absolute political power justifies everything in the mind of the government.

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