As Fidel Castro and his Cuban revolution fade, is Cuba rising?

Seismic changes in the communist economy built by Fidel Castro are enriching some Cubans, scaring others, and sparking imaginations: Will the Caribbean gem shine again?

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    As Fidel Castro and his Cuban revolution fade, a revolution of reform is afoot in Cuba. Manuel Fernandez is a retired state employee who won a rare private business license 20 years ago to operate a repair shop on his front porch in Havana. The government is now pushing as much as 10 percent of its employees into such entrepreneurial work.
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    As Fidel Castro and his Cuban revolution fade, is Cuba rising? The iconic ‘50s- era American automobile is a symbol of the stagnant Cuban communist economy. As Fidel Castro and his Cuban revolution fade, the government is now trying to modernize.
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Antonio Santana and Marina Suarez are children of Fidel Castro's revolution – born into the communism that swept across this island of mambo and mob ties in 1959.

Now thin and graying, with government-issue glasses, Mr. Santana – a pseudonym he asked the Monitor to use out of concern he should not talk to foreign journalists – has had a long career as a state barber. Snipping no-nonsense cuts in a society that overthrew the glamour and glitz of the corrupt Batista dictatorship for social egalitarianism, he and his wife were able to raise twins, a boy and a girl now grown, on his paltry $12-a month salary.

Ms. Suarez, who manages a tidy, crisp look in Cuba's tropical heat, had a career as a government secretary and raised two sons – now 15 and 24 – on her own. Though her $14-a-month salary was pitifully small, she valued the job security.

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IN PICTURES: Cuba Economy

Like all of their contemporaries who have been housed, fed, and employed by the state, Santana and Suarez grew up as pawns in Mr. Castro's trial of free health care and education, state-owned industry, and collectivized agriculture.

As waves of their fellow countrymen fled, and as Castro raged against the sea of capitalism that isolates this island – even providing the stage for cold-war nuclear brinkmanship – the lives of people like Santana and Suarez have been calm if grindingly poor. Never forced to fret over college funds and health-care copays or contend with gaping divides between rich and poor, they've never faced the dramas of market-driven economies. Like most Cubans, they've earned little in their lives – because they have needed little.

But now these children of the revolution have awoken to the hint of a new revolution: In the waning days of Castro's power, a decided tilt toward a market economy has shifted the paternalistic burden from the struggling government onto individual citizens.

Ever since the 1991 fall of the Soviet Union and the decline of support from Cuba's communist brethren, steady tinkering with the economy has given way to the biggest economic upheaval the island has faced since the revolution – the layoff of half a million workers and a push toward private entrepreneurial activity.

The bottom line for Suarez, for example, was a pink slip and a sense of betrayal: "I never thought Cuba could do this, because the government always protected us."

But for Santana, being kicked off the government payroll has been dazzling. Told to start his own business, he has to pay rent; and if his scissors dull or clippers break, he shoulders the expense. But he's also pocketing the pesos he earns – the equivalent of $40 a month, more than three times his previous income.

"I am not a millionaire, but I am better off than others," says Santana. "[I have] the liberty to have my own schedule, prices, and services. I am the boss of myself. Everything that happens is my responsibility, and that is a good feeling."

• • •

When The Atlantic magazine journalist Jeffrey Goldberg asked Castro in September if the Cuban economic model was still worth exporting, Castro answered: "The Cuban model doesn't even work for us anymore."

Castro later cast it as a misunderstood offhand comment, but just a few days later, his younger brother, Raúl Castro, who now runs the government, announced layoffs of 500,000 state employees and programs to encourage many of them to become part of a new retail business sector. It is a radical step in this country where nearly 9 out of 10 people work for the government.

Some believe it represents the largest crack in the communist structure yet. Imagine, they say, Havana with billboards advertising competitive prices on repairs for cars. Imagine those cars are not 1950s Chevys but the newest models off a US assembly line. Imagine those same cars lining up at a McDonalds takeout window.

For many Cubans who have lived their entire lives "making do" in a nation without industry and entrepreneurial opportunity, this latest fissure of reform is seismic – for better or worse.

But most observers say any opening, even after the 84-year-old Castro is gone, would most probably follow a Chinese model that tolerates a degree of free market with a heavy government hand.

No one expects a radical new landscape overnight. Other postcommunist transitions have been slow evolutions. Reforms in China, which today has one of the most dynamic economies in the world, were 30 years in the making. In Vietnam, change was measured in decades, as the country experimented first with opening the agricultural sector and later access to microcredit, before making significant changes to the way the economy runs.

Nor would Cuba probably follow closely any of those precedents. After all, it is surrounded by market economies, and just 90 miles south of the US, it is much more likely to be influenced by American investment than other postcommunist nations have been. While Russia today has a market economy, it is natural resources as much as any reform that have buoyed its transition. Cuba and its flailing sugar industry are in no such position. The denouement of the revolution would probably feature the deep pockets of American tourists sunbathing and sipping cocktails on Cuba's Caribbean shores.

Actual and anticipated change have Suarez reeling: Her days of typing and filing in the halls of the communist bureaucracy are over. Without a paycheck she has started to take in mending work.

"I have a lot of uncertainty about my future and that of my children," she says. "The state says that they will give us the opportunity to work on our own but they do not say anything definitive about how that will happen. Everything is up in the air."

The details of the September announcement of a layoff of 10 percent of the 5 million workforce in Cuba are still not fully known. Layoffs will not be completed until the spring and could eventually include a million workers or more. New private cooperatives will be formed. Self-employment licenses will be issued to 250,000 individuals in 178 new categories, from stonemasons to sports trainers. All will be required to pay taxes.

It is a huge shift in a country that nationalized small businesses in 1968.

"The growth of this entrepreneur sector isn't just some insignificant marginal issue in Cuban economics, it's linked to a central strategy of Raúl's economic policy, which is to dump a million people off the payroll that aren't producing anything," says Philip Peters, a Cuba expert at the Virginia-based Lexington Institute. "They are also talking about establishing cooperatives not in agriculture but in the service sector and the retail sector. Pull this all together and the government is completely envisioning the development of a small and medium business sector in a communist economy, and that's significant."

So the normally languid streets of Havana are now on edge, as a new notion – unemployment – is being felt by many for the first time.

Paternalistic egalitarianism is a cornerstone of the Cuban revolution. Education and health care are provided and housing is highly subsidized. Cubans are given rations of sugar and rice and other basic foodstuffs listed in their monthly libretas, or coupon books. But state salaries averaging $20 a month and food rations together are barely enough to cover people's caloric necessities. Class divides have grown as Cubans with access to remittances and jobs in dollar-dominated tourism outpace those without access to either.

And so Cubans are forced to "get by" on the thriving black market. Walk down the streets of Havana with any Cuban and you are bound to run into a friend or "associate" who puts some kind of offer on the table. Example: A box of toilet paper rolls – usually taken illegally from the workplace – offered in exchange for the equivalent value of gasoline, often also obtained clandestinely.

Still, black-market trade and barter doesn't directly translate into successful entrepreneurialism, says Ted Henken, a professor at Baruch College at The City University of New York who has studied earlier Cuban ventures in private enterprise. He says the state must give more liberty if it demands more economic independence. Cubans need training, microcredit, and access to wholesale goods. "If they're going to require more responsibility of the Cuban people, they have a lot they have to do in terms of giving people more rights."

• • •

The whole situation mystifies Amaury Restrepo, a 24-year-old welder for a railway repair factory in Havana who has suddenly found himself unemployed. The Monitor interviewed him on a Havana Street in mid-October when he said: "I never thought I'd be the one left unemployed The directors said there would be possibilities to open up our own business, but it is not so easy to open one.... To open a business you need funds, and that is what I don't have right now. I don't know what to do."

But apparently Mr. Restrepo decided there was only one thing to do: The Monitor discovered, in an attempt at a follow-up interview, that he'd left Cuba on a motorboat bound for Florida in early November.

These sorts of doubts and questions might be just the beginning of an entirely new way of thinking here. Under Raúl Castro – who took over the presidency from his brother in 2008 and has made clear that economic adjustments are needed – limited but clearly defined reform has already come.

The new president privatized barbershops and beauty salons, allowed taxis to obtain private licenses, and redistributed government land for farmers. He has not minced words. Cubans, he said this summer, have "to erase forever the notion that Cuba is the only country in the world where one can live without working."

But Cuban observers, especially those in Miami, the heart of the Cuban-American community in the United States, say this is driven by necessity, not new thinking. The economy, struggling for decades, has been battered in the past few years – hit by devastating hurricanes and the global financial crisis, a drop in nickel prices, and the worst sugar harvest this year since 1905. The state payrolls are filled with staff who might show up for work – or not.

So long as Fidel Castro, who still heads the nation's Communist Party, is in the picture, few expect Cuba to forge too far down a radical path. "We have to wait and see – and I don't think this will happen until Fidel Castro is completely out of the picture," says Andy Gomez, senior fellow at the University of Florida Center for Cuban and Cuban-American Studies. "Fidel Castro remains a powerful symbolic figure."

And that is why US policy on Cuba hasn't budged. The US embargo, imposed nearly 50 years ago, has been supported by 11 American presidents. And while the Obama administration has relaxed some rules, such as remittances and travel to Cuba for Cuban-Americans, the president has barely responded to both Cuba's release of political prisoners this summer – the largest in more than a decade – and the more recent announcement that some free markets will be tolerated. Despite growing pressure from some lawmakers, the US maintains its longstanding demand that free and fair elections and freedom of expression be implemented before American policy will shift radically.

If the past is any indication, Cubans, analysts, and US officials are right to be skeptical about the staying power of experimentation in Cuba. In the early 1990s, known as the "special period," after the collapse of the Soviet Union, which in turn took down the Cuban economy, the Castro government grudgingly allowed some small businesses to emerge. Many of those reforms were rolled back in the late 1990s and early 2000s, after other players such as Venezuelan President Hugo Chávez stepped in with subsidies.

During the "special period," more than 200,000 Cubans were registered as self-employed; today Cuba counts 143,000 such licenses. Many of the new establishments, such as paladares, small restaurants usually off the side of a private house, were so tightly controlled that many never had a chance to survive. Part of the problem was that the very concept was anathema in a country whose motto, sprayed across billboards, is "socialism or death."

In a scathing piece last year, Cuban blogger Yoani Sánchez, whose blog Generacion Y openly criticizes the government, detailed the case of Huron Azul – a well-known restaurant shut down, she wrote, for: "Selling prohibited food such as lobster and beef; having more than twelve seats in the restaurant; giving credit to the painters to eat there; becoming a patron of the arts; paying a huge electricity bill; having a lot of cash; and – what nerve – wanting to open a restaurant in Milan."

But many suspect Raúl Castro is finally fully exercising his reputation as a pragmatist, ready to usher in change. "There was drive [in earlier reforms of the 1990s] done out of necessity and mostly against will," says Paulo Spadoni, an expert on the Cuban economy at Augusta State University in Georgia. "What differs from previous attempts is the guy pushing reforms [now] isn't the same guy pushing reforms [during the 'special period' of the early 1990s]. Now they're pushing for reforms because it's exactly what they want to do. It is a signal that those reforms are here to stay."

• • •

Many Cubans, like Santana, the barber, are ready for change, to be their own boss. His shop sits in the middle of a bustling office complex. No sign advertises the shop – such investments are still prohibitive. The tiny space, 20 feet by 13 feet, is simple: white walls, with a floor-length mirror in front of a single barber's chair. A cement table in the back holds all of his cutting tools.

Santana says that, except for the $40 in rent and tax he pays to the government, he gets to keep the full 50 cents he charges for a cut. "It gives me a better margin of earnings to feed my family," he says, noting that his grown twins still live with him. This, he says, is "the best thing that could have happened."

Yet Santana knows he is limited as a business owner. He can't invest in his company – from putting up a new sign to hiring more staff to renovating the space – because he simply has no capital.

That is where many see a role for the Cuban community in the US, estimated at about 1.5 million. At least 1 million households in Cuba receive remittances totaling $1.4 billion annually. The average amount sent is $200 a month – 10 times the average monthly salary in Cuba.

Manuel Orozco, a remittances expert at the Inter-American Dialogue in Washington, estimates that 10 percent of Cubans receiving remittances could eventually use that to invest in small business – to upgrade tool sets, fix car motors, or build extra bedrooms to rent to tourists.

But it depends on how far the government is willing to take reform. Optimists point to positive change, including proposed access to microcredit and hiring rules that allow Cubans to employ more than just family members, so that they can form enterprises, says Mr. Spadoni.

Yet questions abound: Where will they buy their products? Who will be able to pay for services? Will high taxes undermine businesses before they even get off the ground? Will taxes dissuade many from taking legal routes and drive entrepreneurs into the black market? Even the government plan for private enterprise, leaked and circulating in a PDF document, acknowledges that many new businesses "could fail within a year" because of a lack of expertise and training, among other factors.

The Cuban exile community, once dedicated to the overthrow of Castro and the triumphant return of capitalistic investment to its homeland, has aged. And younger Cuban-Americans are more wary of investing too heavily.

"The Cuban-American community will help, but nobody here is going to take out half a million dollars and plunk it into a business in Cuba with the system as it is," observes Jaime Suchliki, director of the Institute for Cuban and Cuban American Studies at the University of Miami. "There's no equipment, so any business is going to be very rudimentary, and who will buy their services? They are going to have a high rate of failure."

Mr. Suchliki offers this example: "If you were an inspector of schools in the Ministry of Education [and] they throw you on the street, you don't know anything about business, you have no business planning. You only have dollars if you have relatives in the US. There's a limit to how much anyone will lend."

But if Havana hair stylist Zoraida Bustos is any example of the national sentiment, Cubans will have no problem proving they have embraced their newfound freedoms and are ready to prosper the capitalistic way.

True, her store just has a simple wooden sign with one word written in red: "Hairdresser." She uses supplies sent from family and others abroad. If she had her way, she'd hire two more women so that she could offer pedicures and apply acrylic nails without clients facing endless waits.

An electric sign, new supplies, and added staff, she says, are a long way off. But she feels a momentum that could be hard to rein in: "I was crazy to free myself. Even if the state begins to pressure me, this way I will always be freer."

Jacqui Goddard contributed from Miami. The Monitor's correspondent in Cuba could not be named for security reasons.

IN PICTURES: Cuba Economy

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