Private Sector Growth in the Cuban Economy

by: Natalie Cox 4.25.13

Since 2008, the Cuban government has slowly implemented a number of economic reforms that are stirring up activity in a previously dormant private sector. In small numbers, Cubans are now starting their own small businesses, buying and selling their homes, and (nearly) owning their own land. As Americans, we tend to glorify entrepreneurship, homeownership, and private property rights – so the idea that a country has functioned without these freedoms for half a century is initially horrifying, especially given the skewed, sensationalist impressions Americans already have about the Cuban socialist regime.

What is not common knowledge about this beautiful, oft-misunderstood island nation is that it’s health care system is one of the most efficient and inclusive in the world, training doctors from across the globe (yes, even the US), Cuba boasts some of the best maternal care (with maternal mortality rates lower than the US), biomedical research centers, and rural care on the globe. Cuba’s education system has also been touted as one of the most inclusive, comprehensive, and effective in Latin America, with literacy rates at over Cuba Photo 1099%. As the US struggles to reconcile an exclusive and outrageously expensive privatized health care system, and revive a dissolving public school system , we would do well to look south to our closest Caribbean neighbor.

Cuba felt the 1989 fall of the Soviet Union acutely. The nation plummeted into what is known as “The Special Period”, a time of severe economic depression in the early and mid-1990’s as Cuba lost 80% of its import and 80% of its export activity, and nearly all petroleum imports came to a screeching halt. In the early 1990’s, Fidel Castro began to allow certain avenues of self-employment, notably in the transportation sector. Since then, examples self-employment and entrepreneurship has been scarce, and private business licenses have been hard to come by.

When Fidel’s brother Raul Castro took office in 2008, he made a series of relatively subtle economic policy “updates” that were indicative of this more flexible ideologies about capitalism and its role in the Cuban economy. Now, in 2013, the effects of these reforms are beginning to be felt across Havana.

Following certain reforms after Raul’s inauguration, the Cuban government opened up 180 new categories of “self-employment”, as Raul’s new policy calls for “reducing inflated state payroll, and increasing opportunities for non-state employment”. In the streets of Havana, we now see independent produce vendors pulling overflowing carts, small cafeterias opening their doors to locals, and independent taxi drivers, barbers and salons, and private bed and breakfast operations. Currently, there are over 400,000 government licensed entrepreneurs, or self-employed citizens. And as of 2012, there were 1,736 private restaurants, 5,000 bed and breakfasts, and thousands of pizzerias, snack shops, and small cafés.

There are still significant barriers to enterprising individuals, such as the absence of a wholesale market. When Cubans decide to open their own cafeterìa or restaurant,they still pay the same relatively-high prices as everyone else for their bread, coffee, sugar, vegetables, etc., leaving little room for profit. Given this situation, many entrepreneurs need to turn to tourists as their customer base, who are willing to pay more, and who pay in the second national currency, the Cuban Convertible Peso, or CUC (pronounced kook) which is pegged to the US dollar.

However, early this April, Raul Castro announced plans for a wholesale market to support a burgeoning private restaurants, shops, and services. This is big news, for better or for worse, and more updates to come!

With activity in the private sector, there is concern that Cuba will become another island nation catering to tourists and the rich elite. However, foreign investment that is opening up is heavily regulated as to not dilute the cultural uniqueness of the nation, and even small businesses are strictly controlled. Another worry is the salary potential for the self-employed, who, with current government designated salary scale, can earn twice as much as practicing doctors. The pay scale will need to be regulated in the near future to allow for the flexibility of self-employment while not inflating earning potential. Additionally, the Cuban government is still working out the kinks in its income tax code, which merits another article on its own.

As these economic reforms take root in this shifting socialist society, what occurs to me is the heightened importance of knowledge sharing across borders and oceans. As we re-examine our entrepreneurial spirit in the US to support social innovators and social enterprises, Cuba could have much to gain from our examples. Conversely, the US should look to Cuba’s exemplary health care and education systems as we rebuild our own, with new, more inclusive funding mechanisms.

Inter Press Service
Lexington Institute – A Viewer’s Guide to Cuban Economic Reforms
The Cuban Economy Blog
How Capitalist are the Cubans? – NY Times
Book: Cuba for the Misinformed: Facts from the Forbidden Island

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