Fear is driving Raúl Castro to punish Cuba’s new entrepreneurial class, experts say

Miami Herald
AUGUST 02, 2017 6:20 PM

First, Cuban authorities hauled out tables and chairs from several private restaurants on the island. Then, they put a hold on issuing permits for a range of new ventures citizens had hoped to launch — from home rentals to agricultural endeavors.

The reason, according to experts: fear. The Cuban government does not want a truly successful entrepreneurial class operating on the island.

Cuban ruler Raúl Castro, breaking his own promise to move ahead with economic reforms “without haste but without pause,” has stopped issuing government licenses for some of the more lucrative private businesses on the island such as private restaurants and B&Bs. Other frozen occupations include services for home repairs and electronic equipment, developers of applications for cell phones and web pages, music teachers, education tutors and even blacksmiths.

The announcement by the Labor and Social Security Ministry on Tuesday indicated that the halt will be in place “until the self-employment area is perfected,” but gives no dates as to when the suspension might be lifted. Those who already have licenses in hand can continue working on their businesses, the public announcement said.

Rumors of restrictions on private enterprise had been swirling for months. But in a foreshadowing move of a crackdown, Cuban officials closed at least five popular private restaurants known as paladares — three in Havana and two more in Camagüey in central-eastern Cuba.

The freeze on private sector growth came just when many Cubans had been expecting the contrary.

“Many in these very occupations have been anticipating an expansion of their rights — in the form of a legal (recognition) … as small and medium sized enterprises — not a major freeze in their growth, size and participation in Cuba’s moribund economy,” said Ted Henken, a U.S. sociologist and expert on the island’s private sector.

Others agreed that the new measures were an attempt to put the brakes on the growth of the private sector and the economic reforms launched by Castro, because of fears that an independent economic class could grow into a political rival for the government.

“In Cuba, economic logic is always subject to veto by political logic, especially when the growth, size and prosperity of the private sector is the issue,” said Henken. He added that hardliners in the Cuban government are afraid of the private sector, not only because it competes with state monopolies but because economic autonomy “can lead to more political freedom and independence, and create a powerful lobby with a different agenda than those in power currently.”


Ted Henken, Cuba expert

Former Cuban ruler Fidel Castro, who died last year, was strongly opposed to allowing market forces to gain strength on the island and regularly reined in the private sector. But after he ceded power to his brother Raúl in 2006, the younger Castro began to allow an expansion of the private sector and legalized about 200 categories of self-employment, known as cuentapropismo.

Although the cuentapropistas lack access to wholesale markets and face high taxes, the private sector expanded rapidly. Nearly 568,000 Cubans had licenses to work in the private or cooperative sector at the end of June, equivalent to 12 percent of all Cuban workers, the official Communist Party Granma newspaper reported.

Emilio Morales, president of the Miami-based Havana Consulting Group, estimated that the private sector generates more than $2.5 billion and up to 18 percent of the country’s revenues — indispensable for an economy that was in recession at the end of 2016 and reportedly grew by only 1 percent in the first half of this year.

The halt to new private business permits comes as the Cuban government’s principal ally, Venezuela, is experiencing its worst political crisis in recent years.

Venezuela has already reduced its deliveries of subsidized oil to the island, and Havana has lost revenues from its shrinking reexport of fuels and medical services in Brazil and Venezuela. But the expanding crisis facing Venezuelan President Nicolás Maduro — who was slapped with U.S. sanctions this week and is increasingly isolated internationally — has raised new questions about Cuba’s future.

Havana’s new restrictions may signal that Castro fears losing control of that future, experts said. But they warned that the move will have a negative impact not only on private entrepreneurs but also on the overall economy and its ability to attract foreign investments.

“With the economy in recession and the problems approaching because of the worsening crisis in Venezuela, the new measure issued by the government casts a strong mantle of uncertainty over investors who still look at the Cuban market with justified mistrust,” said Morales.

That uncertainty already increased following the election of President Donald Trump and his hardening of the U.S. policy toward Cuba. His administration is working on new regulations to block U.S. visitors from staying at hotels owned by the Cuban military — most state-owned hotels are run by a military conglomerate — and to ensure Americans don’t visit the island simply as tourists, which is outlawed by the U.S. embargo.

It’s not entirely clear how the halt in new licenses for private enterprises such as B&Bs and restaurants will affect Cuba’s tourism sector but it could result in more money for government coffers.

“If there are fewer private sector options, travelers will be required to accept government-operated entities; meaning more revenue for the government of Cuba,” said John Kavulich, president of the U.S.-Cuba Trade and Economic Council, which monitors bilateral trade.

The government, meanwhile, said the permit suspensions “do not constitute a step back” in the self-employment sector, said Marta Elena Feitó Cabrera, deputy minister of Labor and Social Security. “They are an effort to consolidate the organization and control self-employment so that it can continue to advance in an orderly and efficient way.”

Cuba watchers, however, said the new measures defy economic logic.

“It is a senseless exercise that — far from helping the economy emerge from its unproductive limbo — sinks it deeper into its failed strategy of a centrally controlled economy,” said Morales, of the Miami-based Havana Consulting Group.

Follow Nora Gámez Torres on Twitter: @ngameztorres