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Experts Debate Future of Cuba's Private Sector

By Larry Luxner

These days, as any recent visitor to the island can attest, the streets of Cuban cities from Havana to Holguín brim with beauty salons, barber shops, casas particulares (rental properties) and mobile phone repair kiosks — all signs of a boom in the self-employed sector.

Independent businesses now employ an estimated 30 percent of Cuba's workforce and will likely expand further. Yet the Cuban government's reluctance to reform its own bloated bureaucracy — not to mention the Trump administration's continued hostility to Havana — do not bode well for the blossoming of Cuba's economy any time soon.

On Oct. 16, more than 120 people gathered at Washington's Inter-American Dialogue to hear where Cuba's private sector is headed since 87-year-old Raúl Castro turned over the country's presidency to Miguel Díaz-Canel, 58, half a year ago.

The expert panel — moderated by the think tank's president emeritus, Peter Hakim — included Ted Henken, who teaches Latin American studies at New York's Baruch College; Jeffrey DeLaurentis, former chief of the U.S. Interests Section in Havana; and professor Camila Piñeiro Harnecker of the University of Havana's Center for the Study of the Cuban Economy.

Holding up a copy of the newly published book "Voices of Change in Cuba from the Non-State Sector" by his colleague, Carmelo Mesa-Lago of the University of Pittsburgh, Henken said that private entrepreneurs "have the potential not just to help the Cuban economy out of its doldrums but also to transform the official state sector, which still makes up 71 percent of the economy."

Henken estimated the number of self-employed entrepreneurs — known in Spanish as cuentapropistas — and their workers at around 600,000. He based some of his talk on a paper, "The Revenge of the Jealous Bureaucrat," presented several months ago at the annual Miami meeting of the Association for the Study of the Cuban Economy.

"This is a lot more about political power and turf control than about encouraging or perfecting rules for the private or non-state sector," Henken said. "Perfecting is one of the Cuban government's favorite terms, as in 'we're going to perfect the exercise of self-employment.'"


Prominent economist and Cuba expert Ted Henken speaks at an Oct. 16 panel at Washington's Inter-American Dialogue on Cuba’s private sector. Photo: Larry Luxner

Over the past year, he noted, "a series of ominous signs that threatened the continued development of Cuba's entrepreneurial sector" has emanated from Havana.

On Aug. 1, 2017, the government decreed a new law that basically froze the issuance of new licenses in 27 categories of self-employment and eliminated five more — such as wholesale and retail sale of produce, pushcart produce sales and CD-DVD sales — that relied heavily on black-market goods.

Unfortunately, Henken said, those very occupations were the most lucrative — and the most creative in their interpretation of existing laws.

"There were raids, crackdowns and closures of a number of businesses," Henken said. "Díaz-Canel, who was then first vice president of Cuba, was recorded in a video railing against parts of the private sector. There was a lot of suspicion about who leaked that video."

But Camila Piñeiro Harnecker, author of the 2013 book "Cooperatives and Socialism: A View from Cuba," disagreed that private businesses are the answer to Cuba's woes.

"Despite the U.S. embargo — which is a real and major barrier to Cuba — our situation is not as dire as China and Vietnam before the reforms," she said. "But the Cuban economy has to maintain consistency if they want to stop the loss of young people and professionals who emigrate every day. There is more than one alternative to make the Cuban economy grow and satisfy the needs of its citizens. Private businesses are not going to ensure sustainable growth unless they are under social, rather than bureaucratic, control."


“There is more than one alternative to make the Cuban economy grow and satisfy the needs of its citizens. Private businesses are not going to ensure sustainable growth unless they are under social, rather than bureaucratic, control,” argues Cuban economist Camila Piñeiro Harnecker. Photo: Larry Luxner

Piñeiro, challenging the prevailing notion that Cuba's economy must grow at any cost, questioned whether such growth would even be sustainable.

"Should Cuba renounce the idea of building a more fair and egalitarian society where one's income is tied mostly to work and not property ownership?" she asked, arguing that "cooperatives should be independent from the state. True co-ops are not private businesses because they respond to more broad social interests and are seen as more socialist than private businesses. That's why they receive better treatment with regard to taxes and access to credit."

DeLaurentis, who served in Havana from 2015 to 2017, said reforms under Díaz-Canel will likely continue, although some critics of the Cuban regime say they're little more than a sham.

"My sense has been that since 2011, the leadership wanted to move away from the individual to the institutional. But the fact there are more actors at the top now may generate a different dynamic," said DeLaurentis, who played a key role in U.S.-Cuba negotiations during the Obama administration that led to the re-establishment of diplomatic ties in 2015.

DeLaurentis was nominated to be the first U.S. ambassador to Cuba in more than 50 years, but his nomination was blocked by right-wingers and ultimately went nowhere.


Jeffrey DeLaurentiis, former chief of the U.S. Interests Section in Havana, says that while the Trump administration claims it wants to persuade the Cuban government to “enhance the role of the private sector,” its policies to distance itself from the island are having precisely the opposite effect. Photo: Larry Luxner

"Cuba has begun a public debate on various issues that heretofore had not been discussed in public. These kinds of discussions are rare. Will these be rubber-stamped by the leadership? We'll have to see. These kinds of gatherings have unintended consequences," he said. "Cubans have been calling for direct elections for president in some of these public forums. There was significant debate in the National Assembly perhaps for the first time. I'm not suggesting anything more than that. It's just something to watch."

DeLaurentis said some private sector regulations will be well-received; others won't be.

"This is all now a recognized part of Cuba's future, along with foreign investment, however managed and restricted. The sector clearly lacks full authorization in the constitution and access to wholesale markets," he said. "I remember during the Obama administration, Cuban officials were very clear about the accumulation of wealth in private hands, which is prohibited in the 1976 constitution."

Looking to the future, he said the Trump administration claims it wants to persuade the Cuban government to "enhance the role of the private sector" — but that Washington's policies since Trump took office are having precisely the opposite effect.

"It was the individual travelers who frequented all these businesses who are now not allowed to travel," he noted. "Businesses have suffered dramatically as a result of all this."

During the first three months of 2018, said DeLaurentis, about 95,000 Americans visited the island — a 40 percent drop from the same period last year.

"If the administration does well in the midterms, we're going to see more movement in this direction," he predicted. But he added that "if the Democrats win, we're likely to see legislative action to support further engagement, and to try to boost the private sector and increase economic interaction in general."

Larry Luxner is news editor of The Washington Diplomat.




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