Cuba’s Private Sector: The Dangerous Road Ahead

Osmel Ramírez Alvarez

HAVANA TIMES — Until the end of the 1980s, the words “business person” were akin to an obscenity in Cuba. Working for the State was the norm and even farmers who hadn’t handed over their lands to a cooperative were suspect. The communist ethos had imposed its rules on the population.

Everything changed in the 90s, when the collapse of the Soviet Union and socialist bloc left the country in worse shape than breaking ties with the United States had. Begrudgingly, Fidel Castro authorized self-employment as a non-State means of economic activity.

It was a simple formula that envisaged individual labor and not the hiring of others (or the hiring of others under highly exceptional circumstances). Hence the singular name given Cuba’s private sector (“self-employment”), which suggests a primitive economy more than a capitalist one.

It was the government’s hope that the socialist State economy would recover and sweep this sector off the map in a matter of years. Within this context, the self-employed faced many limitations and applicants weren’t granted licenses for many years. The idea was to take away such licenses, not encourage the growth of the sector.

When turning back no longer was an option

In 2006, Raul Castro inherited a totally bankrupt country. Fidel Castro’s lectures at Havana’s Convention Center, where he publicly ate Cuban chocolate bars and the household appliances of the so-called “energy revolution” were put on display, proved very popular, but those measures doubled Cuba’s foreign debt and brought no significant investments in the productive sector.

We made it to the list of untrustworthy countries in terms of credit. It was then that the new president had the courage – or had no choice but – to make some changes, including authorizing the granting of new licenses for private initiative. The range of authorized private sector activities was broadened and now allows for the hiring of personnel, albeit in a limited manner.

Before these liberalizing measures, all such work was illegal and a carpenter, a street vendor or trucker was officially a delinquent hiding from the law. Today, they hold licenses to operate, but, in many ways, they are still treated like “law-abiding criminals.”

In his speeches, Raul Castro has asked that the State apparatus respect the newly-established forms of production and contacts between State and private entities are now permitted. There are arguments to claim, however, that the Cuban State disdains the private sector and merely tolerates it as a necessary evil. Worse still, it forces members of this sector to engage in criminal activities, to lie and to do most things “under the table.”

Two examples suffice to get a global sense of the situation

The self-employed do not have a wholesale market where they can purchase supplies at fair prices. Under the law, they can turn only to Cuba’s retail market, which has very high prices and proves unreliable. As their customers are mostly impoverished Cubans, the self-employed are forced to turn to the black market, where products are stolen from State workplaces. They have no other choice.

In addition, taxes are steep and stifling. The government taxes small businesses as if they were transnational companies. If you’re an honest taxpayer, you simply have to shut down your business.

To get a clearer picture of the situation, if the owner of a pizzeria were to legally purchase the flour, cheese and tomato sauce, they would be forced to sell their small individual size pizzas at 25 pesos, a prohibitive price for customers that earn less than that in 8 hours of work. They can only offer affordable prices by working with stolen supplies. Imagine how much flour is stolen from the Cuban State, what with the thousands of pizzerias operating every day (and the fact this is the most popular junk food in Cuba).

The same holds for trucks that transport goods and passengers, or with cabs. There are thousands of them on the road and they all operate with stolen fuel. Who would be able to afford the fare if these people were to legally purchase the extremely expensive diesel fuel at State gas stations?

Setting a precedent

The most disquieting aspect of these practices isn’t the fact resources are being stolen from the State, it is the negative precedent it sets and the nefarious consequences this could have in the future. If a child is born in a dysfunctional home, they have less chances of becoming a responsible adult. If Cuba’s private sector is required to evade taxes and to commit crimes since infancy, what can we hope for in the future?

Today, we’re dealing with sacks of flour, tanks of diesel and the occasional white lie, but, as we rough it one day at a time, the country’s moral and ethical values are becoming deformed. One wonders whether our future business class will have any qualms about evading taxes or laundering money.

The State is concerned about the growing strength of the private sector because it threatens its economic supremacy, but they have let go of the reins and can’t stop the process now. Some radicals are accusing the State of causing the cost of living to go up. However, those of us who have a bit more perspective know this is not exactly the case.

The private sector has to grow and consolidate itself as a determining force in the development we need. We need only be concerned with its birth defects and the potential consequences this can have in the future.