US Must Adjust Cuba Policy To Island's New Realities

Roberto lives and works in Havana, but not in a socialist economy. As a Spanish manufacturer's representative, he travels around Cuba, makes sales calls, and generally learns how to work in a multinational company. His salary, paid mostly in dollars, is five times that of a Cuban doctor. He likes writing new orders.

Daniel is among the 160,000 Cubans who operate small businesses, an option made legal in 1993. He quit a government job two years ago to set up shop as a locksmith. He earns only slightly more than before, but prefers his independence.

"It's better to have more responsibility," he told me in March when I visited his cramped street-front booth in Havana's Vedado neighborhood.

His challenges: tracking costs and profits, paying taxes, and dealing with moody customers. "These are things I don't know," he says, "and none of them mattered when I worked for the state."

Luis tried his luck as a vendor in Havana's farmer's markets, but after two weeks of losses, he returned full-time to his small farm, on land that has been in his family for generations. He delivers a quota of sugarcane to the state, and keeps the profit from any additional produce he sells. Luis expects to profit more by selling his surplus to a wholesaler, rather than making retail sales himself.

Foreign investment, small business, and agriculture reform are three sparks that have restored modest growth - 2.5 percent in 1997, 7.8 percent in 1996 - to an economy that nearly collapsed in 1993.

Tourism and family remittances from abroad also help. Official figures say that one in four workers is in "non-state" employment.

Statistics aside, it is clear that Cuba's incipient reforms are building a private sector, and hundreds of thousands of Cubans benefit.

Foreign companies teach employees capitalist business practices, and many pay monthly dollar bonuses tied to production. Farm cooperatives and state enterprises are beginning to tie pay to output, an un-Marxist policy endorsed by last October's Communist party congress.

Small business stands out because it relies on the initiative of individual Cuban citizens exercising an economic freedom they lacked five years ago. It enlivens Cuban cities and towns, which for decades had been eerily devoid of commerce. It gives a new generation a chance to learn entrepreneurship. On average, entrepreneurs' earnings are 70 percent higher than the salaries of Cuban doctors. Their families live better as a result.

Cuba's reforms are limited, however.

Foreign investors cannot own property, they hire workers through state agencies, and since the bulk of their wage payments go to the state, they effectively pay high labor taxes. Small businesses lack a wholesale supply system, most cannot hire employees, and they face inspections that can result in heavy fines, sometimes arbitrarily imposed.

"Here, they don't make anything easy," many entrepreneurs say.

But a Havana glass cutter makes an equally typical comment as he chooses among hand-made templates to fix a rear-view mirror: "There is no job in the state that I could have that would be better than this. Here, I'm in charge."

The glass cutter reminded me of a conversation we'd had 15 months earlier, when he was facing the risks of starting his business. Today his business is steady, and he is slowly renovating his house.

Should the US respond to Cuba's economic opening?

Until two years ago, US policy was to encourage reform: Sanctions were to be reduced "in carefully calibrated ways in response to positive developments in Cuba." But today, our law cements the embargo until Cuba's government "does not include Fidel Castro or Raul Castro."

It directs the president to name new bureaucrats and committees to promote "market-based development in Cuba," once a political transition is complete. But an economic transition has already begun.

As Americans debate its extent and its significance, we should also debate whether our policy - banning trade, travel, and investment (including in small business), while refusing visas to Cuban officials invited by American groups to the US to discuss economic policy - isolates us from events we could try to influence.

On Havana's streets, Cubans seem eager to resume contact with the US.

A priest summed up the church's view: "There is nothing positive in isolating a people."

We should summon the confidence that many Cubans already have in us - that in Cuba as elsewhere, Americans could do more for our own values as actors rather than as spectators.

* Philip Peters, who was in Cuba for 11 days in March, is a senior fellow at the Alexis de Tocqueville Institution in Arlington, Va.