Cuba Expands its Private Sector, but Not Enough

Many Cubans hoped that reforms would solve an obvious paradox: tourist guides, waiters and taxi drivers earn more money than surgeons, engineers and scientists.

By Cubaencuentro

HAVANA TIMES – Car dealers, book publishers and hedge funds are still banned. While home rentals are allowed. Zoos, diving centers and arms manufacturers continue to be restricted. Veterinary services are now allowed.

The Cuban government continues to expand the country’s emerging private sector, in an irregular way. Cubans are carefully analyzing a list of economic activities that the government wants to keep under its control, Ed Agustin and Kirk Semple write in The New York Times.

Announced as a provisional list, it features 124 activities that will remain banned for private enterprise. The most powerful and productive sectors of the economy will remain under the State’s control, including those that employ many highly educated and skilled professionals, such as medicine and health assistance, education, communications, and jobs linked to construction, such as architecture and engineering.

In the days running up to the list’s publication, the government announced that this new listing would greatly expand the number of economic activities allowed for private activities. It would substitute the previous list of 127 authorized kinds of private work and business. The idea being to absorb state layoffs, create jobs, open up new markets and revive the economy. The news could have foretold a huge opening of the economy, raising all of Cuba’s hopes and expectations.

The latest list seems to open up a new and important space for production. For example, Cubans can now apply for a license to run cheese-making, paint and toy factories. However, the government has yet to define the scale these enterprises can operate on.

Some Cubans praised the list for being an important step forward towards economic liberalization in the country. Others complained that the government wasn’t making enough headway.

“It’s a disaster,” Gerardo Guillen Garcia said. He’s a 26-year-old architect from Havana whose job the government plans to keep under its absolute control. “Every time something shows up like a panacea, it ends up being nothing.”

“My dream is to do exactly what I’m doing now, but within a legal framework,” he said, explaining how he had left a state-led company and was now working independently, without a license. “I want to manage my own architecture projects, without bureaucratic red tape getting in my way.”

These reforms have been driven, in part, by an extreme need. In 2020, the Cuban economy (already depressed for a long time), shrunk by 11%, when Donald Trump’s administration tightened the embargo it has against the island, and the COVID-19 pandemic stopped tourism in its tracks. The country’s economic livelihood was gone. This left the government without the foreign currency it needs for imports. Cuba imports most of its basic food products due to faltering production.

Over the past decade, the number of Cubans working outside the state – the so-called “self-employed” – almost tripled, to some 600,000.. However, these people mainly work in jobs that fall under the services sector, such as restaurant and accommodation management, or driving taxis. Unofficial estimates report that nearly half turned in their licenses during 2020. [Likewise, the government provided no economic assistance to people with small or micro businesses.]

When announcing the expected expansion of the private sector, Marta Elena Feitor, the minister of Labor and Social Security in Cuba, said that these reforms would “unlock the productive forces” of the general population. It hasn’t exactly worked out that way.

Many Cubans were hoping that the reforms would fix an obvious paradox. More educated and better trained members of the workforce are working in jobs controlled by the government, and are often paid a lot less than less skilled workers who were already working in sectors authorized for private work. Tour guides, waiters and taxi drivers can earn more money than surgeons, engineers and scientists. A distortion which former president Raul Castro called “the unfair inverted pyramid,” but never reverted.

The State’s monopoly of so many jobs – a strategy to hold onto political power and to ensure social services to the entire population – has meant that many highly-skilled workers end up leaving the public sector and dedicate themselves to the emerging private sector, where they accept jobs they are overqualified for. Others go abroad searching for greater incomes.

Ricardo Torres, an economist at the Center for Studies on the Cuban Economy in Havana, said the list released of banned economic activities stirred mixed feelings in him.

He said that he was disappointed because the list excluded certain sectors such as engineering, architecture, accounting and the digital economy.

However, he also says that the measure seems to open up “many areas” to the private sector, including specific forms of production and some professional services, such as financial advisors, publicity and graphic design.

“It’s an important step,” he said.

He explained that the government didn’t go further because it wanted to protect itself from a potential mass exodus of poorly-paid professionals in the public sector.

“If the entire economy opens up to the private sector, the state will no longer dominate,” Torres said. “The government wants to prevent this.”

However, Omar Everleny Perez, an economist and former professor at Havana University, said that the scarce opportunities the list presents the country’s professional class won’t stop Cuba’s brain drain problem.

“If professionals can’t see themselves working privately in Cuba, the only thing left is to go abroad,” he said. “This has already been going on for a long time: architects, mathematicians, biologists, many leave.

Expanding the private sector first began in 2011, with the Communist Party’s “Guidelines”. Raul Castro, who was president at the time, said that the “updating process” of the island’s socialist model should advance “without haste, but without stopping.”

But in spite of Castro’s insistence, reforms stagnated in part because his brother Fidel Castro – who had retired, but was still powerful – opposed them. After Fidel Castro’s death in 2016, high-ranking strategists in the Communist Party continued to delay reforms using the excuse that these measures would generate greater inequality.

However, the economic crisis has led to a general consensus among the Party’s leadership circle in recent months, to most of the population’s happiness.

“Many people say: Why don’t they do it faster?” the economist Perez said. “I’m in this group.”

“But it’s clear that things are moving forward,” he said. “They aren’t moving backwards.”

Analysts have said that while expanding the private sector would suggest a relaxation of the government’s control over the economy, it didn’t mean that the State would be ready to adopt capitalism completely.

“I believe that Cuba is making progress along the same road that Vietnam more or less took,” Perez added. “This won’t be the end of socialism.”

Referring back to the inequality that expanding the private sector would result in, Perez said that it seemed inevitable. He hopes the Cuban government intervenes with its social security system.

“Inequality exists now and, in the future,,” he said. “I believe we need to recognize that the State will help those left behind.”

Different analysts have said that the latest reforms and others could have a positive impact on US-Cuba relations. These froze considerably when Trump’s administration adopted a hostile stance towards the Caribbean island. One recently adopted measure allows private people to legally import and export certain things through state companies.  

“The US, in general, and the government, in particular, approve of this expansion of the private sector,” Torres added. “Somehow, this creates a more favorable climate for rebuilding relations.”

Read more from Cuba here on Havana Times.