Posted January 27, 2004 by publisher in Cuba Business.
By David E. Gumpert | Business Week
In Fidel Castro’s topsy-turvy workers’ paradise, hard-currency tips mean that street performers and self-employed chefs live better than surgeons.
If you’re worried that your business might fail and you’ll wind up as a bellhop, hotel maid, or street musician, I have some glass-is-half-full news for you. Such nightmare scenarios may not be as bad as you imagine, especially if the U.S. ever reestablishes relations with Cuba. At that point, you’ll always have “the Cuban option” for beginning life anew.
You see, Cuba is a place where the structure of working life has been turned upside down. Whereas ambitious young Americans push to become doctors, lawyers, and architects, in Cuba the situation is completely reversed. Professionals are at the bottom of the economic totem pole, earning $10 to $30 a month. (Imagine, trial lawyers and surgeons making a dollar a day!) Menial service providers are the nation’s entrepreneurs, at the top of the economic ladder, earning hundreds, and sometimes thousands of dollars a month.
MARX AND ANGLES. I learned about Cuba’s unusual approach to entrepreneurship during a recent five-day tour of Havana and environs. I was there as the closest thing to a tourist American law will allow—I went with a group from my synagogue under a special “license” issued by the Treasury Dept., to visit and support Cuba’s Jewish community. But, of course, I played tourist as well, and could only marvel at the revised economic order Fidel Castro has created.
We in the U.S. know Cuba best as one of the last remaining sad-sacks of the rigid Communist economies. But there has been an important loosening in the dominant ideology during the last few years that has permitted a reawakening of the island’s entrepreneurial instincts.
In a desperate effort to turn its terribly depressed economy around during the early 1990s in the wake of the Soviet Union’s collapse, Cuba began focusing heavily on tourism. It restored dozens of crumbling buildings in historic Old Havana and transformed them into first-class hotels and attractive restaurants. It promoted tourism to audiences in Canada, Europe, and the rest of the world outside the U.S. And it shrewdly made legal the American dollar, allowing its arch enemy’s currency, flowing via Miami expatriates and international tourism, to turn things around.
HAVES AND HAVE-NOTS. Today, tourism accounts for about 60% of the country’s “exports.” In the process, though, Cuba’s supposedly classless society now consists of two classes: the destitute class, including many professionals, who rely on Cuba’s nearly worthless pesos, and the entrepreneurial class, which works in Cuba’s tourist industry, earning the dollars that make the wheels go round. The most enterprising Cubans find a way to work with tourists, and acquire dollars via tips. Bellhops, waiters, hotel maids, tourist guides, and street musicians earn anywhere from $150 to $1,500 a month from tourists, astronomical sums in a country where the typical salary is $20.
The maids in our hotel scrawled daily notes, in English, wishing us a nice day, and arranged towels into heart shapes on our bed. Professional tango dancers performed extemporaneously at a restaurant during lunch, then passed the hat. A parade of clowns on stilts, complete with trombone players, ambled down a side street during the same lunch, with the last clown holding a pail that quickly filled with dollars. A teenage boy with some artistic talent appeared out of nowhere as my group was taking a walking tour of Old Havana and sketched impressive caricatures of us at $1 apiece.
In a further concession to the pressures of tourist-based entrepreneurship, the government even permits individuals to establish restaurants, known as paladares, in their homes. One I went to charges $24 per person for a four-course gourmet meal, and can serve 30 or more people per evening, six days a week. That’s a cool $4,000-plus per week, or $16,000 a month, of revenues, before tips—though there are more in the way of fees and taxes for these regulated businesses, not to mention food costs, than for bellhops and tour guides. Rents are not a problem, since Cuba’s brand of socialism limits rent to 10% of income, and often less.
MY BOY, THE BELLHOP. Now Cuban parents must deal with children who no longer aspire to become teachers or dentists, and instead covet bellhop jobs. Even the people running the tourist industry seem to be former professionals in other fields. Tony Diaz, vice-director of Havanatur, a $150 million government enterprise, is a trained economist who spent 20 years as a diplomat before taking over at what is now one of Cuba’s largest companies. “I consider myself an entrepreneur,” he told me at his spacious Havana office, hooked up to the Internet and with CNN playing in the background. He isn’t exposed to tourist tips, and he says his salary is only “a little more” than the $20 average, which limits his upside.
So what is his incentive? “My rent is 65 cents. The education of my three daughters is free. Medical care is free.” So his incentive, he says, “is Cuba—making more money for my country. I know the money will be used socially.” Unlike the rest of Central and South America, bribery is unheard of, and no one gets fancy cars or houses, as in capitalist countries, he points out.
Diaz feels that “the fact that so many people with university degrees are in our industry is wonderful.” He expresses the hope that they are doing it for the same reasons he is: love of job and country.
SONG SUNG GREEN. I heard few such observations from the new entrepreneurs I spoke with. Take Sonja, lead singer of a four-person band that plays at Old Havana restaurants. (Sonja isn’t her real name. I have disguised her identity because, as you will see, the legal and tax aspects of these entrepreneurs haven’t been fully resolved and I wouldn’t want to get anyone in trouble.)
Sonja’s band plays Cuban music at lunch and dinner at a couple of different restaurants, which “hire” her band, at no cost. Sonja doesn’t care that she’s not being paid by the restaurant. After all, she’s an entrepreneur, and she just wants access to the end users, the tourists.
After playing a while on a warm January evening, she passed the hat, and offered the band’s three CDs for sale. The Canadian, French, and American tourists at the cafe mostly either stuffed a dollar in the hat, or bought a CD for $10 (yielding a profit of $7.50 each). At the end of a typical month, the band gets to divide about $1,000 of net profit, for $250 apiece, or more than ten times the average Cuban salary. With their dollars, Sonja and the band can purchase meats, fruits, vegetables, and other difficult-to-obtain items in dollar-based farmer’s markets and at special dollar stores that are closed for the most part to ordinary professional Cubans. Even the dollar stores’ $200 washing machines and $500 refrigerators have become available to the band members over recent years.
MATTRESS INVESTING. Now that their basic necessities are covered, one of the biggest problems for Sonja and other Cuban entrepreneurs is what to do with their money. They’re in a legal gray area, since all of their income is in cash, and it’s difficult for authorities and entrepreneurs to know or define what each expects of the other under the law, such as it is.
The Big Brother nature of the island’s Communist government makes entrepreneurs nervous about converting their dollars into pesos and putting them into local banks, for fear of authorities knowing too much, and also because of fear of surprise currency devaluations. So at least a few, like Sonja, resort to stealth. They gain the help of trusted foreigners to establish joint accounts in the U.S. or Canada. Some hide their money under the proverbial mattress, or convert it into gold jewelry.
These Cuban entrepreneurs are quick learners.
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