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Cuba to dismiss 500,000 workers, fueling island's fledgling private sector
CubaNews / September 2010

By Larry Luxner

Cuba-watchers haven’t had this much to talk about in years — possibly decades. Considering the slow pace of change in Cuba, the last 30 days have brought a dizzying flurry of announcements and decrees from the regime of Raúl Castro — and rather surprising comments from older brother Fidel revealing everything from his admiration for Jews to his frustration with socialism.

Last month, the regime approved a law allowing foreign investors 99-year property leases, as well as a little-known provision that lets it sell land to Cuban state entities in perpetuity.

Then in mid-September, it dropped a bombshell: over the next six months, half a million redundant workers, or nearly 10% of Cuba’s total workforce, will be laid off, while previously forbidden areas of the island’s state-run economy will open to the private sector.

And now, the Castro government is mapping out how the island’s biggest economic transformation since the early 1990s will play out.

On Sep. 24, those plans were described in detail, in three full pages of Granma, the Communist Party mouthpiece.

“Our state cannot and should not continue maintaining enterprises with inflated payrolls, losses that pull down our economy and make us counterproductive, generate bad habits and distort worker behavior,” declared the Confederación de Trabajadores de Cuba, the country’s only legal labor union (see story, page 3).

Self-employment will be allowed in 178 activities and the regime will even consider financial credits for Cuba’s new entrepreneurs.

And starting in October, Cuba plans to issue 250,000 cuentapropista licenses for people to begin new lives as food vendors, masseuses, personal trainers, car repairmen, accountants, tutors and bathroom attendants, tripling the number of officially self-employed people in Cuba.

Meanwhile, another 200,000 state jobs will be transformed into employee-run cooperatives and leasing arrangements.

For the first time, Cubans in 83 private activities will be allowed to hire people other than their relatives, AP reported from Havana.

The Central Bank is even studying ways to get small loans into the hands of Cuba’s new entrepreneurs, according to Granma, which cited Economy Minister Marino Murillo Jorge and a vice-minister of labor and social security, Admi Valhuerdi Cepero.

Phil Peters, vice-president of the Lexington Institute in Arlington, Va., and longtime expert on the cuentapropista phenomenon, told CubaNews things will happen gradually rather than suddenly.

“I’m sure we’re not going to see 500,000 people get pink slips and be out on the street the next day. There are many cases where people will go to exactly the same workplace as before, except that the place will be converted from a state enterprise to a cooperative, and they’ll have to sink or swim,” Peters told us one day after the layoffs were announced.

In 1996, said the Lexington Institute, the number of cuentapropistas peaked at 209,000. Ten years later, even though that number had fallen to 143,000, the island’s self-employed workers were still earning three times the average Cuban salary of $20 per month.

At present, 84% of the Cuban labor force, or over 5 million people, worked for the state at the end of 2009, according to official figures.

Granma said private restaurants called paladares will be able to expand to 20 seats, up from the current 12. Yet many popular paladares were already ignoring the 12-seat limit.

“The cafeterias, repair shops, taxi companies, beauty shops and retail operations are dysfunctional, so they’ll be converted,” said Peters. “Clearly they’ll lay off government workers, but we need to see how many licenses they’ll give. None of that is clear yet. The business conditions they put on the cooperatives will tell the whole story.”

What is clear is that the government is determined to make this work.

“There will be some zigs and zags, and some shortfalls, but they’re very serious about this. It’s seen as a strategic necessity,” said Peters. “This goes all the way back to speeches both Fidel and Raúl gave identifying the economy as Cuba’s Achilles heel.”

Antonio Zamora, a prominent Cuban-American attorney and expert on Cuba’s real-estate and property laws, just returned last week from his latest trip to Havana. He told CubaNews there’s a buzz in the air he’s never felt on any of his previous visits to the island.

“Everybody’s excited about this,” said Zamora, who’s also founder of the US-Cuba Legal Forum. “There’s going to be some accommodation. Some people will retire, and this will be handled in a delicate and savvy way. But there won’t be massive layoffs. People are delighted that there will be opportunities, and that more professions and activities will be approved. This is a positive thing.”

The new policy approved by Raúl Castro’s government also loosens rules on Cubans who want to rent their homes out to tourists, saying they no longer have to live there themselves and can hire staff. AP says that “creates the possibility of posh bed-and-breakfasts, instead of the threadbare boarding houses that exist now.”

Previously leaked Communist Party documents have said cuentapropistas will pay taxes ranging from 10-40% on their gross income, depending on their business, plus another 25% for the national social security program.

“Nobody’s doubting that this will happen. Some will make it and others will not,” Zamora predicted. “A lot of people are already doing these things illegally, and now they’ll have to get a license and pay taxes.

“So more money will come into the national treasury. There’s going to be competition, and those who are paying taxes will be very upset at those who don’t.”

Much of the capital for these startups will undoubtedly come from families in Miami.

“Liberalizing the economy could lead to 10% of Cubans receiving money to invest in small businesses,” remittance expert Manuel Orozco of Inter-American Dialogue told Reuters.

He said 750,000 Cuban households now get money from abroad, of which 75,000-100,000 are likely to invest in small businesses, with average investment of $2,500 per family.

Ted Piccone, senior fellow at the Brookings Institution, acknowledged to CubaNews that “some people have speculated whether this is being done to draw the United States into a different approach to Cuba policy. But I don’t think that’s the primary motive,” he said.

“They’re dealing with a desperate economic situation, and they need to move forward. It’s going to be a painful transition for all those thousands of workers who will be let go, because I don’t think there’s enough of a private sector to absorb that quantity of people. But you’ve got to start somewhere.”

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