Friday, July 25, 2008

Cuba under Raúl: Creeping toward capitalism?

The Christian Science Monitor

Cuba under Raúl: Creeping toward capitalism?

Since Raúl Castro took the helm in February, he's rolled out a series
economic changes, including allowing Cubans to buy cellphones and giving
farmers profit-incentives.
By Sara Miller Llana and Matthew Clark | Staff writers of The Christian
Science Monitor

from the July 23, 2008 edition

Havana - A handful of Cubans are taking turns doing bicep curls and
pedaling on stationary bikes. At first glance, there's nothing
extraordinary about this nameless gym in the basement of a Havana
apartment complex.

Yet when night falls, the machines – crafted out of wood planks and
scavenged metal tubing – disappear like a government informant into the
shadows. They are disassembled and tucked away to make room for the
coughing Russian Ladas and '50s-era American cars that fill the
building's parking lot.

Officially, this fly-by-day gym does not exist, but Guillermo Arrastia
opened it five years ago. He employs a staff of three and collects
monthly $5 fees from more than 100 members. It is run completely "por la
izquierda" – "on the left" – a term that describes how most Cubans make
ends meet. "We have to survive," says Mr. Arrastia, unapologetically.

Such gray-market microenterprises exemplify a spirit of dynamism and
creativity straining to be fully unleashed, say some observers of Cuba.
The question of the day: Is Raúl Castro about to release it?

The island nation's economy has struggled mightily since losing the
support of the Soviet Union in the early 1990s. Free-market reforms
within a socialist system, like the kind embraced by China, had been
rejected by Fidel Castro, who ruled for a half century. But there are
signs that younger brother Raúl, who permanently replaced Fidel in
February, may orchestrate a move toward a more capitalist economy.

Raúl's reputation as a pragmatist is unfurling expectations here that
the era of asceticism and austerity is coming to a close. Major
agricultural reforms have been unveiled. And in a speech earlier this
month, he seemed to be preparing the populace for an economic shift.

"Socialism means social justice and equality, but equality of rights, of
opportunities, not of income," Raúl said on July 11 while addressing
Cuba's rubber-stamp parliament in its first session since he replaced
Fidel. "Equality is not egalitarianism."

It's hard to imagine the father of the 1959 revolution ever uttering
such words, say Cuba analysts. And a recent flurry of headline-grabbing
changes – such as allowing Cubans to patronize tourist hotels and to own
cellphones, DVD players, and computers – is fueling speculation about
how fast Raúl will pursue the "China model" of a managed creep toward
free markets. Some expect more reforms to be announced during a speech
by Raúl on July 26, Revolution Day.

"Cuba is never going to go as far as the Chinese have in dismantling the
social safety net," says William LeoGrande, a Cuba expert at American
University in Washington. But he says that Raúl has already exhibited an
expediency that Fidel never dared: acknowledging under-the-table wages,
raising salaries and enticing productivity with payment, and, most
important, he says, introducing market incentives in the farming sector
that could be the starting gun for reforms in other sectors.

"To some extent, they are experimenting to see how additional market
mechanisms work out economically and to see the political
ramifications," he says. "I think there are a lot more changes coming."

After the Soviet Union collapsed – and Cuba lost generous oil supplies
and subsidies that had buoyed the economy for decades – a "special
period" of economic hardship ensued. In this context, Fidel grudgingly
loosened the economy, giving rise to a new crop of tailors, mechanics,
and restaurateurs. The government created about 150 categories of
licenses for Cubans to start their own businesses, and the ranks of
self-employed swelled to 200,000.

Today that number has fallen to 150,000, says Antonio Jorge, a retired
economics professor from Florida International University who also
worked as a finance official in the early years of Fidel's reign. Fidel
began to discourage such businesses the late 1990s, saying that they
were creating economic inequality, says Mr. Jorge. A gap was growing
between entrepreneurial haves and state-employed have-nots.

In response, the government stopped issuing new licenses for 40
categories of businesses (including restaurants) in 2004, jacked up
taxes, and created other limits on income growth, such as reducing the
number of tables permitted at paladares – private restaurants that
Cubans are allowed to run out of their homes.

Jorge says that Fidel wouldn't allow anything that detracted from
absolute central government control. But, he says, that Raúl could, for
example, boost the number of categories of small businesses and be more
liberal in the granting of licenses, or remove some of the barriers such
as high taxes. "These are measures that won't affect his hold on power
or change the collectivist nature of the regime, but will improve
standards of living for some people," says Jorge.

But for now, the burdens Fidel imposed have merely pushed
entrepreneurial activity underground.

Ani, a 20-something Cuban woman – who like most Cubans interviewed for
this series withheld her last name – has opted out of the state jobs
system, one that she once idealistically embraced, she says.

She was trained as a teacher in her home province Pinar del Rio, and
moved to Havana to teach junior high students. But after a few years of
making 200 pesos ($9) a month, she quit. "The [pay for the] job was not
worth it," she says.

Now she has no official job, aside from helping her aunt rent out a room
to foreign tourists, an illegal but far more lucrative venture. When
asked about the loss of her contribution to society as an educator, she
shrugs: "This is how it works here. What we don't have we invent."

Everything is 'on the left'

It takes no more than a half day with Jorge Aviles to see that nearly
everyone in his Havana neighborhood, and in his sphere of activities,
operates "on the left."

There is the neighbor who rents out her empty apartment to foreign
tourists – even though by law to rent a room in your house you must live
there. There is another who sells pizzas out her side window at night.

As Mr. Aviles walks down the street, he gets "business" proposals,
ranging from risky to innocuous. One a recent day, he bumps into an old
friend and is offered a year's supply of soap bars for $75. He counters
by offering the spare room he sometimes rents by the hour to couples.
The friend replies that he and his girlfriend have recently gotten their
own place. How about an installment plan of $25 a year for three years,
he asks. Aviles passes.

"Everything here is about selling and negotiating, and it's all
illegal," says Aviles, who insists on using a pseudonym since he is on
the government's radar after being fined in November for renting his
room to foreign tourists without authorization.

He questions why endeavors that would be considered entrepreneurial and
encouraged in most countries are outside the law here.

Back at his underground gym, Arrastia also knows he faces a fine if he
is found out.

After he lost his computer sales job and hit on the idea of a gym in the
parking lot, he sought a government license for his gym. But he found
out that the business category doesn't exist. So he consulted his
building's neighborhood association, which approved of his plans. Today
he pays the association about $12 a month to keep quiet about the
arrangement. He knows he is at the mercy of any disgruntled neighbor,
but he also says that such endeavors will be legalized and that his tiny
exercise room with about 25 homemade machines will be the template for a
much bigger business some day.

"I do believe this will be authorized," says Arrastia. "I want to have
another much bigger gym, legally.... I will grow this business and have
gyms all over Havana."

Farm reform on fast track

How soon, if ever, urban Cubans like Arrastia will get the opportunity
to legally run small businesses isn't clear. But Cubans in the
countryside may already be on a faster track to change. Agricultural
reforms could radically transform the island's economy: Last week, Raúl
granted private farmers the right to till plots of up to 99 acres of
unused government land. This follows a previous announcement to shift
control of farms from the central government in Havana to local
councils, raise prices for certain products to boost production, and
give farmers the right to use whatever farm equipment they can afford to

Almost immediately upon taking power 50 years ago, Fidel Castro began
nationalizing the telecommunications industry and expropriating farm
lands. Less than a decade later almost all businesses were in state
hands. In exchange, Cubans were given subsidized food, free healthcare,
and homes. The economy never functioned independently, and it has never
quite recovered from the fall of the Soviet Union.

Cuba now relies heavily on Venezuela, whose leftist President Hugo
Chávez sends nearly 100,000 barrels of oil a day to the island in
exchange for social services, such as Cuban doctors and teachers. Even
though Raúl promises not to veer from the ideals of the revolution, he
has publicly acknowledged that the system does not work in its current form.

The moves to increase crop production are, in part, a response to a
global spike in fuel and food prices, which has made the subsidized food
system – once regarded as one of the major successes of the revolution –
untenable for many ordinary Cubans today. "We're [in deep trouble],"
whispers a man, using an expletive, while exiting a state-run produce
market in Havana. He says he could not afford to buy anything to
supplement the monthly ration of rice, beans, potatoes, eggs, a little
meat, and other goods. Many Cubans say the ration does not last them
more than three weeks, if that.

In his most recent speech to parliament, Raúl implored his countrymen to
work harder and prepare for tough times ahead as the global food crisis
ripples toward Cuba. "We have to definitively reverse the decline in the
amount of cultivated land," he said, adding that it has shrunk by 33
percent in the past nine years. "Stated simply, we must return to the
land. We must make it produce. There is already a clear strategy and a
plan of action, from the national level to the lowest level of production."

Currently more than half of arable land lies fallow or is under used,
according to Cuban government figures cited by The Associated Press.
Cuba spent $1.5 billion importing food last year. This year it is
expected to spend $1 billion more, say officials.

"There's been a recognition by Raúl that the government cannot run farms
as well as [private] firms can," says John Parke Wright, a wealthy
rancher and sixth-generation Floridian whose ancestors were instrumental
in cementing trade ties between Tampa and Havana in the 1800s (see
sidebar, page 11). Mr. Wright and other longtime observers say that
market experiments on farms are just a stepping stone to a more open

Texan cattle and cotton

But while some Cubans blame their economic woes on strict controls and
prohibitive taxes, many still view the US and its 1962 trade embargo as
the bigger culprit. No matter how much Raúl seeks to open the economy,
the embargo will stand in the way of much-needed foreign investment,
analysts say.

If the economy is opened up, the tourist industry will explode. But it
is on the farms and fields of Cuba where a change is most likely – and
there is no shortage of investors eyeing potential changes. On May 27, a
group of trade representatives from Texas wrapped up the first official
state visit to the island since the US established the embargo.

"Cubans expressed a sincere desire to do business with Texas," says
Texas agriculture commissioner Todd Staples, who led the delegation.
Cuba is an important market for Texan cattle, rice, poultry, cotton, and
processed food products that enter under provisions in the US embargo
that allow small amounts of trade in agricultural products.

"We just went to develop relationships, but the trip exceeded our
expectations," says Mr. Staples. Members of the delegation signed two
new cotton contracts worth $400,000 and initiated several other
contracts for poultry, milk, and processed foods. "Positive trade
relationships can lead to greater understanding of the issues that
divide us," he says.

Such goodwill may not be the status quo in either nation right now, but
the sense that change is coming certainly is. "The social values we
espouse mean nothing if there is no economic basis," says Renel, a young
lawyer in Havana. "Whether it is socialism, communism, capitalism, even
feudalism, things are going to change."

Squatting to fix one of his broken-down stationary exercise bikes,
Arrastia agrees: "In the future, the economy will open up. It has to.
The people have a limit."

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