International Business

Are self-employed Cubans really budding entrepreneurs?

Entrepreneurship has many faces in Cuba today, from street vendors who sell skimpy tube tops purchased at Miami discount stores to the chauffeur of an improvised bicycle taxi to the operator of a white-tablecloth private restaurant with the tips already included in the bill.

But while the government initially declared that it wanted to move 500,000 Cubans off state payrolls by April 2011 and another 800,000 by the beginning of 2012, it has fallen far short of those targets. And there is a vast gray area in this world of so-called cuentapropistas, where the self-employed function on the fringes of legality, key elements that would lead to successful small businesses are missing and broad questions remain about how the program should go forward in a communist country.

There’s also disagreement about whether Cuba’s flirtation with private business represents a path toward true entrepreneurship or has simply resulted in reinforcement of a shadowy informal economy where cuentapropistas bend the rules in order to survive.

At the end of May, nearly 430,000 Cubans in a workforce of 5 million were self-employed, according to a report from the CubanMinistry of Labor and Social Security. But not all of them are furloughed government employees.

Some 14 percent were retired, meaning they didn’t switch from current state employment to working on their own, and analysts say a significant number are probably former black marketeers, who are used to operating outside the bounds of state control, or workers who have held on to their state jobs but want to earn extra money on the side.

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“So far it’s been more of a legalization of the illegal economy than creation of a small business class,’’ said Ted Henken, a Baruch College professor and president of the Association for the Study of the Cuban Economy.

Self-employment is permitted in181 economic activities, and 18 percent of cuentapropistas are employed by small private business owners. In other fledgling attempts at private business, scores of non-farm cooperatives — most of them former state companies — have been launched and private farmers are now cultivating once-idle public land.

The budding private sector is mainly a service economy. The most popular activities are selling and preparing food, transportation of cargo and passengers, renting homes and selling agricultural products on the street, according to the Ministry of Labor and Social Security.

Karina Gálvez, an economist from Pinar del Rio, agrees that the recent changes aren’t necessarily things the government wanted to do, but said the economic situation as well as pressures from Cuba’s nascent civil society obligated the reforms.

Speaking at the recent meeting of the Association for the Study of the Cuban Economy in Miami, Gálvez said that many of the self-employed have to “break the law’’ to make a living because taxes are so high and many self-employment activities still aren’t allowed, including freelance work by lawyers, accountants, architects and other professionals.

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Some of the new entrepreneurs have resorted to bribing inspectors to avoid high fines for violations, said Gálvez, who is also one of the founders of Convivencia, a digital magazine.

“In Cuba, everyone commits illegalities in their business,’’ said Antonio Rodiles, a Cuban political activist who has created a forum for public debate through his Estado de SATS movement. One of the most common infractions, he said, is stealing electricity because utility bills are so high.

“At this point, self-employment is failing,’’ he said. Many of the cuentapropistas are dependent on the black market to supply them, and instead of the emergence of a small entrepreneurial class, he said, what is happening is the encouragement of an informal or underground economy.

But Gálvez said she believes the self-employed prefer to operate legally. “This gives me hope,’’ she said. “I believe in the force of la pequeña (small).”

José Luis Leyva Cruz, a professor at the University of Camaguey, also has embraced entrepreneurship with a project he calls “ DLíderes,’’ whose goal is to develop entrepreneurial leaders in Cuba. Lacking another space, the organization held its first meeting in front of his home in Camaguey.

He outlined DLíderes’ goals during the ASCE meeting: Develop networks of entrepreneurs and intellectuals, provide training in leadership and technology, develop a digital magazine called @emprenda, and connect international patrons with Cuban entrepreneurs.

“In Havana you see a lot of successful entrepreneurs who are creating jobs or innovating,’’ said Henken. For example, some of the more sophisticated paladares (private restaurants) have live music, well stocked bars and gourmet fare.

“There is a new class of high-quality gourmet restaurants mainly surviving on their owners’ ingenuity,’’ he said. But Henken added, some of the more established enterprises “may have some form of protection’’ and are run by former military or government officials.

Many self-employed people are “still trapped in survival mode with very low productivity,’’ Henken said. “And a lot of corruption is caused by unworkable, antagonistic rules the government has put in place.’’

Analysts said important ingredients for these very small businesses to be more successful would be micro-credit programs, a dependable wholesale network to supply them, and a system for allowing investment capital.

“The micro-entrepreneur is the beginning of the solution; it is not the solution,’’ said Jorge A. Sanguinetty, president of Devtech, an international consulting firm specializing in development.

Self-employment became legal in Cuba in 1993 after the collapse of the Soviet Union plunged the island into dire economic straits, but it fell out of favor as a government policy until President Raúl Castro revived it in 2010.

The Cuban government has made it clear that it doesn’t want market forces to get out of control and that it isn’t a fan of wealth accumulation by its citizens. During the 2011 Party Congress, Castro said that self-employment is “an active element facilitating the construction of socialism in Cuba.’’

Meanwhile, informal trade connections also operate between the cuentapropistas and Cuban-Americans despite the U.S. embargo, which has been in place for more than 50 years and prohibits U.S. citizens and companies from buying and selling in Cuba.

U.S. exports of food, farming equipment and medicine are exempt from the embargo, but a wide array of goods also enters in the form of gifts to family and friends.

Cuban-Americans not only bring in many of the products offered for sale by Cuba’s self-employed, but they invest in businesses and provide tools, equipment and other inputs needed to set up small businesses from car-washing operations to woodworking shops.

The Obama administration lifted restrictions on family visits and remittances in 2009, opening the floodgates for Cubans-Americans to send cash and products to the island, and then went even further in 2011 by allowing any American to send $500 per quarter to qualified Cubans on the island.

There are various levels to this “commerce.’’ Some people operate purely as “mules,” ferrying goods to Cuba for a fee and working with a group of customers who aren’t necessarily family members. Others carry goods to Cuba for resale by their families.

Still, other Cuban-Americans act as silent partners, generally joining family members in various enterprises, or supply the cash for purchases of real estate or cars.

“There is this gray area with various levels of legality,’’ said Richard Feinberg, a professor at the University of California, San Diego, and a senior fellow at the Brookings Institution. In effect, sending remittances and goods to Cuba’s private sector is a “way to punch a hole in the embargo,’’ he said.

Despite the problems faced by Cuba’s new class of small entrepreneurs, Sanguinetty views self-employment as a positive in creating civil society. “In any society there are entrepreneurs. The point is that a business entrepreneur is an entrepreneur in general — including political activities. An entrepreneur is a very dynamic person, willing to take risks.’’

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