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Cuba stacks up the building blocks of a new economy

 

Mimi Whitefield, The Miami Herald

 

The pace of economic reforms has picked up as Cuba seeks to move more people off government payrolls in an effort to boost its economy.

 

It has been nearly four years since Cuban leader Rául Castro announced plans for a series of reforms to raise Cubans’ living standards and tie personal gain to individual work and initiative. Change came at a glacial rate for the first few years.

 

But in the months since the Communist Party of Cuba held its Congress in April, the pace of economic reforms designed to wean workers from their dependence on state employment and create their own jobs has quickened.

 

Castro has said he wants to furlough more than 1 million superfluous state workers, although that is proving more difficult than anticipated. Still, the economic reforms and new decree laws kept coming in 2011.

 

In December, Cuban authorities announced the government would rent out state-owned workshops where jewelers, carpenters, locksmiths and other budding entrepreneurs could set up shop, and 500 bank branches across the Communist island began processing business loans for cuentapropistas — the term for self-employed workers, and those who want to build or repair their homes.

 

While Cuba has fallen far short of its original goal of removing 500,000 excess workers from state payrolls by last year and despite miscues along the road to reform, the changes are starting to reach critical mass.

 

More than 357,000 Cubans have applied for licenses to start businesses, and the signs of change are everywhere: mom-and-pop pizzerias, stands near the University of Havana selling pork sandwiches, bed-and-breakfasts appear on Internet booking sites, former state-run beauty shops now operated by erstwhile employees, garage shops offering clothes and housewares, and new business placards touting services from shoe repair to home repairs to homes for sale.

 

“It does start to give meaning to government claims that they want the private sector to grow,’’ said Phil Peters, a vice president at the Lexington Institute who has followed the reforms. “They have broken down barriers’’

 

But the question remains: Are enough building blocks in place so a mom-and-pop operation can be transformed into a successful small business?

 

One of the more significant reforms is Cubans’ new ability to buy and sell homes, rather than to swap dwellings of supposedly equal value. Not only does the move cut down on under-the-table dealings but it could allow Cubans to free up significant capital, and unleash a wave of home building, renovation and other entrepreneurial activity.

 

But analysts say Cuba must still deal with severe shortages of building materials as well as address financing and mortgages before the reform can really bear fruit.

 

“The economy is still capital-starved,’’ said Ted Piccone, a senior fellow at Brookings Institution.

 

This year, the government removed a number of other obstacles to doing business as well as steps to encourage the development of small businesses and increase food production. Among the measures:

 

•  Soon government offices in need of repairs, transportation, cleaning and other services will be able to contract with small businesses instead of relying on government work brigades that often experienced long delays in getting tasks done.

 

• In addition to applying for loans, small businesses and small farmers can now open commercial accounts — a necessary step in doing business with the government.

 

•  The price on bulk items such as cooking oil and mayonnaise as well as tools, roof tiles and some other construction items has been lowered to support newly independent workers who don’t have a wholesale market for purchases.

 

•  Farmers can sell directly to state-run hotels and other tourist facilities. They also will soon be able to lease up to 67 hectares (around 166 acres) of land for 25 years and build homes on the leased property, according to a recent Reuters report.

 

•  The government opened up more of the retail services sector Sunday , allowing appliance repair, carpentry shops and locksmiths, for example, to lease their shops. In another change, small private businesses can also hire their own workers.

 

•  Cubans and foreign residents can now buy, sell and donate their used cars. During the first two months of the reform, which went into effect in early October, 4,304 cars changed hands and 14,630 registrations for car transfers were issued, according to Granma, the official newspaper of the community party.

 

Unlike the flirtation with free enterprise of the 1990s that came in the wake of the collapse of the Soviet Union — then Cuba’s main benefactor, most analysts say the current changes are here to stay. After the economy improved, Havana rolled back a number of free-market reforms it instituted in the 1990s.

 

“It doesn’t feel tentative this time,’’ said Peters. “In the 1990s, they undertook a limited number of measures and were half holding their noses as they were announced. Now that’s not the case.’’

 

With the economy limping along in recent years — the government pegged 2011 growth at 2.7 percent, this time there doesn’t really seem to be much of an alternative.

 

The government hopes to save money not only by having fewer workers on state payrolls but also by collecting taxes from the newly self-employed and on transactions such as the sale of a car, which carries a 4 percent levy.

 

An indication of the commitment to the changes is a section called Sin Pausa (Without Pause), on the website of Trabajadores, the newspaper of the government-controlled national trade union. It’s a collection of articles on the changes and what the new decree laws mean with information on everything from how to get titles for properties before selling them to information on government plans to deal with the shortage of construction materials.

 

During a meeting of the National Assembly, Cuba’s parliament, in August, Castro expressed impatience at the pace of reform, saying: “Don’t forget that the first decade of the 21st century has passed and it’s time.’’

 

But there are still issues on the table — and Cuba must try to make changes against the backdrop of a creaky, inefficient bureaucracy and too many citizens who have learned to survive by stealing from the state. Castro alluded to these problems during his speech to the National Assembly, saying the biggest obstacle “is the psychological barrier formed by inertia, inflexibility, pretense or double standard, indifference and insensibility.’’

 

Another matter that hasn’t been addressed is whether to allow professionals to be self-employed. If, for example, a Cuban who is building or repairing a home wanted to hire an architect or engineer to draw up plans, would such professionals be allowed to work on their own?

 

And Havana must find the proper balance between a desire to increase revenue through taxation and not taxing so much that it squelches fledgling private businesses, said Peters.

While most analysts agree that economic reforms are too far along to be reversed, the rebuilding of the Cuban economy is definitely a work in progress.

 

“It does seem like the jury is still out on which of the changes will really take hold. I would characterize the process as slow, gradual and wait-and see,’’ said Piccone. “It’s very much an experiment as it goes along.’’

 

And as envisioned by Cuba’s aging leadership, the free-market changes aren’t designed to do away with Cuban communism but rather to ensure its survival after current leaders are gone.

 

It’s also a learning process for the new cuentapropistas who must deal with taxation, where to get their raw materials, competition and businesses that sometimes operate at a loss. “I think we’ll see a substantial portion that will fail but for natural reasons, such as oversupply of certain types of home-based businesses,’’ said Peters.

 

But one thing the reforms are doing is shifting people’s attitudes about their role in the economy. Their new ability to buy and sell homes and cars also is increasing their mobility to move across the country. Exiles’ monetary contributions to businesses being started by friends and relatives are giving them a stake in Cuba’s future economy, too.

At this point, where it will all lead and what political implications there might be remain unclear. But Peters said, “There is no doubt these changes are creating more independence for Cubans.’’