The Dallas Morning News
Saturday, February 28, 2004

Cuban entrepreneurs test small steps in capitalism

Havana businesses voice familiar gripes: taxes, red tape

By TRACEY EATON / The Dallas Morning News
HAVANA Sick of paying income taxes? Well, it could be worse. Some months, Ariel Duyos hands over 80 percent of his income to the government.

But this small-time Cuban capitalist isn't complaining. He makes more money than the island's top brain surgeons and nuclear physicists, 11 years after Fidel Castro trying to provide relief during hard economic times allowed the first wisp of free enterprise to seep into the socialist system. Still, capitalists in the Western hemisphere's only communist country don't have an easy time. They pay some of the world's highest taxes, they endure mountains of red tape and they regularly tangle with government inspectors.

Such difficult conditions have caused the number of cuentapropistas or workers on their own account, as these Cuban capitalists are called to drop from 209,000 in 1996 to 149,990 today.

"Cuban officials are taking measures based on a perception that they have breathing room," said Philip Peters, a former State Department official and now Cuba specialist for the Lexington Institute, a private research organization in Arlington, Va.

Tourism has rebounded and the Cuban economy has improved, so officials are not encouraging growth in the number of cuentapropistas, Mr. Peters said.

"These entrepreneurs operate in a tightly limited legal space, but they show initiative and prosper. They are an indicator of the degree to which Cuba could generate new jobs, growth and tax revenue were it to embrace a genuine small business sector," he said.

Fidel Castro has lashed out at cuentapropistas, accusing them of piling up small fortunes while other workers, including teachers, doctors and police officers, barely get by on low wages.

"The more contact we have with capitalism...the more repulsion I feel," the Cuban president said in 1998. "This excess money which a lot of people have is causing us a lot of damage."

Cuban Cabinet ministers, engineers and armed forces officers earn $12 to $23 per month, according to a 2002 report by the Institute for Cuban and Cuban-American Studies at the University of Miami. But those in the private sector make many times that, said the study, entitled "Growing Economic and Social Disparities in Cuba."

Farmers make from $77 to $1,923 per month; truck drivers from $385 to $770; prostitutes from $240 to $1,400; landlords from $250 to $4,000; internationally recognized musicians from $600 to $6,000; and private restaurant owners from $12,500 to $50,000, the study said.

U.S. officials say there's nothing wrong with some Cubans earning more than others because some people have more talent, intelligence, energy or skill than others and should be compensated for it.

"The absence of economic freedom has been as destructive to prosperity as the absence of political freedom to human dignity," said a Dec. 15, 2003, State Department fact sheet on Cuba. "The underemployment of a creative and educated population, coupled with almost total control of the legal economy by the centralized state bureaucracy, fuels a massive illegal economy."

Cuban officials say that workers' benefits, including free schooling and health care, easily make up for any disadvantages that the socialist system may have.

They also say that these workers aren't discriminated against because of their capitalist bent and enjoy all the social and retirement benefits of other Cuban workers.

Cuentapropistas "guarantee important services to the population," which is adversely affected by the "criminal" 4-decade-old U.S. ban on trade with Cuba, said Nestor Iglesias of Cuba's Ministry of Labor and Social Security.

Mr. Castro makes it clear that he does not plan any changes or any shift toward capitalism. He emphasized that point on Jan. 29 during a five-hour speech at the Third Hemispheric Encounter of Struggle, an event that drew participants from 32 nations and is aimed at coming up with alternatives to a hemispheric U.S. free trade agreement.

Even so, the seed of capitalism planted in Cuba in 1993 remains alive.

Mr. Duyos sells little wooden boxes used to store Cuban cigars or whatever else you have in mind. But whether the 25-year-old sells any boxes or not, he must pay $159 per month in taxes plus about $2 in rent for his space at the artisans' market in Old Havana.

"I think $159 in taxes is high," he said. "I'd be happy with $100."

By law, he's allowed to sell his wares for only 16 days a month, "and sometimes that's not enough days to make that money," to pay the taxes, he said. But he said he prefers that to working for a state-run company.

When business is good and tourists are swarming Old Havana, he said, he earns as much as $600 a month. When tourism drops, he said, he makes only about $200. And he has to pay the $159 tax even when he goes on vacation.

Lisette Garcias, 38, is another cuentapropista. She sells figures made of papier-mache and also pays $159 in taxes per month.

"I made enough working here to buy a TV, but later I had to sell it to pay my monthly taxes," she said.

The Cuban government has not made all forms of private enterprise legal. Cubans are allowed to work privately in only about 150 occupations. These workers include plumbers, carpenters, tire repairmen, hairdressers, bicycle parking lot attendants, taxi drivers and flower vendors. New licenses are difficult if not impossible to obtain.

Authorities began imposing income taxes in 1995, the first such taxes in Cuba in 37 years.

Not all workers pay the same tax. Some give just 5 percent of their income to the government.

Still, the restrictions are many. Private restaurants, for instance, can only have 12 seats and can only employ family members, although those rules are sometimes broken.

The restrictions fall heaviest on restaurants, taxis and artisans who compete with state-run enterprises, Mr. Peters said.

Some workers also say they regularly underreport their income to pay less taxes.

Jose Ramón Glarai, 72, has been a cuentapropista for the last six years and sells used books in Old Havana.

"I make enough to live but not to get rich," he said. The disadvantage, he said, is that he sometimes must endure rain or suffocating heat. But even worse than that, he adds, is "going through the stress of not selling anything."

Despite such ordeals, cuentapropistas will be vital to the Cuban economy in the post-Castro era, researchers say.

"When a transition toward a true free-market economy occurs in Cuba, the self-employed will be an important minority of Cubans who have worked in small enterprise, who are familiar with risk taking, investment and profits, taxes and regulation," scholar Benjamin Smith wrote in a 1999 study, "The Self-Employed in Cuba: A Street Level View."