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 , Staff writers of The Christian Science Monitor , Staff writers of The Christian Science Monitor

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    Clandestine gym: Guillermo Arrastia built exercise equipment out of old scaffolding. He runs this illegal gym in a Havana garage.
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    Old institutions: US cars and the capitol building.
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    MORE Pineapples, please: The island nation's food import bill almost doubled last year, so the government is taking steps to boost private farm output.
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    Home cooked: The living room in this private Havana home is now licensed as a paladar, a small restaurant. But a steep tax is collected.
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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.

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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 buy.

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 economy.

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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