Economist Richard Feinberg sees the new regulations that will govern Cuba’s private sector starting this December as “the revenge of the bureaucrat.”
While the most successful of Cuba’s nearly 600,000 cuentapropistas, who work in the private sector, have been making money and are excited about trying to expand their businesses, Cuban bureaucrats, including some Communist Party stalwarts, and employees of struggling state enterprises, have been receiving “miserly salaries often in boring jobs to nowhere,” said Feinberg, a professor at the University of California San Diego’s School of Global Policy and Strategy and a Brookings Institution fellow.
“They’ve felt envious, left behind, marginalized,” he said.
The new regulations, which were released last month but don’t take effect until Dec. 7, also go into impressive detail about potential violations, penalties and fines, oversight and performance requirements.
Case in point: The regulations for a Cuban who wants to run a private day-care facility.
Such a child-care attendant must have a space large enough to devote a minimum of 21.5 square feet to each child and be able to lay in a stock of personal toiletry items for each of the children.
That includes a comb, toothbrush, bath towels, hygienic towels, cutlery, mugs and other items — all labeled with the child’s name. And the new rules specify the hooks for their towels must be a minimum of 20 centimeters (3.94 inches) apart.
“The bar seems to be set impossibly high” for a home-based business, said Feinberg. “The level of detail in some of these regulations is quite disturbing. I see the whole thing as the revenge of the bureaucrat.”
Those same bureaucrats also have come up with rules designed to virtually guarantee that most private businesses won’t grow beyond 20 employees. There is an upward-sloping wage scale that calls for increased wages the more workers who are hired. It kicks in after the fifth worker, and once an establishment hires more than 20 workers, a private employer must pay the 21st employee six times the average wage.
Under the old rules, private employers didn’t have to pay any taxes on the first five workers they hired. Now they will.
The message is clear from the voluminous regulations published July 10 in Cuba’s Gaceta Oficial: Private employment is fine as long as cuentapropistas don’t get too rich, diversify their businesses, open branches, try to evade taxes, resort to the black market, or provide too much competition to the state sector.
“We are living through a tough moment now. The spirit of the new law is there shouldn’t be any concentration of wealth. When I walk through the city, the commentary I hear is the law is bad and the new focus much worse,” said Jose Ignacio Piñeiro Guardiola, who runs Finca Los Colorados, a paladar ( private restaurant) and five-bedroom bed-and-breakfast near Rancho Luna Beach outside Cienfuegos on Cuba’s south coast.
The Cuban government began a small-scale experiment with self-employment in the late 1970s. But as the island’s economic fortunes ebbed and flowed through the years, self-employment was emphasized or de-emphasized. In 2009-2010, Raúl Castro revived cuentapropismo in earnest as a way to move hundreds of thousands of people off bloated state payrolls and deliver a greater variety of goods and services to Cuban consumers.
But with problems cropping up as some entrepreneurs carried the spirit of free enterprise a bit too far for Cuban government tastes, a crackdown began last summer. The government put on the brakes and announced it was suspending the issuance of new licenses in 27 of 201 self-employment categories.
Among those areas targeted were licenses for private restaurants, bed and breakfasts, and for dressmaking. The last had become a problem because many who held a license for dressmaking or tailoring were actually reselling clothes that had been brought in from abroad. There were about 2,000 private restaurants and around 22,000 rooms being offered in Cuban casas particulares (private bed and breakfasts) when the freeze on new licenses went into effect.
Now that moratorium on new licenses will be lifted in all but a few categories.
While that’s welcome news for cuentapropistas, “the new rules also suggest that micromanagement and short-term economic thinking remain the norm,” said Andrew Otazo, executive director of the Cuba Study Group.
Now, at least, there will be some clarity for cuentapropistas on what they can and cannot do.
But the new rules also don’t address some of the issues that cuentapropistas had hoped for: There is no provision for white-collar professionals to work for themselves, there aren’t legal channels that allow private entrepreneurs to directly import for their businesses, and there is no recognition of their businesses as legal entities.
“Two years ago, the government declared that there would be legal recognition for small and medium-sized businesses. But it’s nowhere in these regulations,” said Ted Henken, a Baruch College professor who has written frequently about cuentapropistas.
Another major concern of cuentapropistas, the dearth of wholesale markets, also isn’t addressed.
The regulations seem to be an attempt at addressing growing inequities. While the state sector has stagnated, those who work in the tourism-related businesses who can get tips in hard currency, Cubans with access to remittances and the self-employed — who now represent 13 percent of the workforce — have done noticeably better.
The owner of one private restaurant recently said she is not getting rich by American standards, but that the restaurant does afford her family a nice lifestyle: more stylish clothes, extras for the kids, an occasional trip abroad.
“I don’t want to be a millionaire, but I want to live well. I am not bourgeois. I am a simple woman,” said Niuris Higueras, the proprietor of Atelier, a private restaurant in Havana’s Vedado section that has been a favorite among American visitors.
While $15 for dinner and a drink at a paladar might seem to be a bargain to a foreign visitor, it represents more than half the average monthly salary of just under $30 for a Cuban. These days the average salary barely covers basic necessities, and a $15 meal is an unattainable extravagance for many Cubans. There is resentment when they see their more affluent compatriots at fashionable clubs and restaurants.
As fast as Cuban bureaucracy has come up with onerous regulations in the past, just as quickly Cubans have devised plans to try to get around them.
To subvert a regulation that private restaurants can’t have more than 50 seats, a restaurateur who wanted to serve larger groups would sometimes take out multiple licenses for a restaurant and cafeteria, and family members also would take out licenses. “Pretty soon they were entitled to 200 seats, and many people made investments so they could accommodate 200,” said Camilo Condis, a Havana entrepreneur.
Under the new rules, having too many seats could result in a 1,000 peso [$40] fine, and possible loss of a license.
This time the bureaucrats seem to have anticipated some of the cuentapropistas’ possible maneuvers.
Cubans may own only one private business under the new rules. So someone who cuts hair or does manicures, for example, couldn’t also run a private restaurant or rent out a few rooms in their home. The rules also make it clear there can be only one licensed restaurant, bar or cafeteria per address — not all three.
That means Cubans with more than one business license will have to make hard decisions about which ones to give up.
Condis has two licenses: one to rent a one-bedroom apartment he owns in Centro Habana and the other to work in a private restaurant along Callejón de los Peluqueros, a short stone-paved alleyway where dozens of people hold cuentapropista licenses.
He plans to give up his license as a private restaurant worker.
But he says renting out his apartment isn’t a full-time job. “Am I supposed to sit on my couch all day because legally I can’t work at something else?” he asked. Condis said the new regulations essentially do away with part-time work for many people. “Starting in December, they say if you’re a hairdresser, you can’t also work as a gardener because you won’t have the time,” he said.
But he expects Cubans will continue to find ways to be entrepreneurs. “We may see a new wave of marriages,” so one spouse can apply for a license that would have had to be relinquished and the couple can keep running the business together, said Condis.
Piñeiro also is contemplating what will be the best move for him at Finca los Colorados. He’s applied for a license to run a bar/recreation area, and has a license for the restaurant where he is known for his seafood platters and another to rent out rooms.
His father, he said, can run the casa particular but now he will need to decide whether to continue pursuing a bar license or continue with his restaurant.
“I’ve got to consult with my lawyer to see which one is better for me,” he said. He used to hold big parties on a large patio with two bars but was discouraged by the government from staging them for Cubans so he decided to apply for the license.
Piñeiro said he’s invested a lot of money and effort in improving Finca Los Colorados so making the wrong decision about how to go forward can have economic consequences.
A big problem for multiple license holders, Condis said, is that they won’t be compensated for the business license they must give up and there is no mechanism for cuentapropistas to legally sell their businesses.
The regulations outline mechanisms at the national, provincial and municipal level that will oversee implementation of the new rules. “The spirit seems to be much rigorous oversight at all levels. This empowers the bureaucrats,” Feinberg said.
While the Cuban government says none of the previous approved activities for self-employment will disappear, a number of categories have been consolidated, so now there are 123 instead of 201. Instead of separate licenses, for example, for barbers, manicurists, hairdressers, make-up artists and so on, all these activities have been consolidated into a beauty services license.
The new rules also take aim at Cubans who travel to Guyana, Panama and other locales to buy clothing, shoes and other items for resale as well as the so-called mulas (mules) who tote bulging suitcases and plastic-wrapped packages from the United States stuffed with products that will be sold in Cuba.
The new descriptions for dressmakers, tailors, artisans, cobblers and sellers of shoes make it clear that resale will not be tolerated: “The commercialization of factory-made clothing and footwear or imported [by the license holder] or other people is not included” in such licenses, the new rules say.
Cuban cuentapropistas are still in the process of digesting the 126 pages of new regulations. The government plans to hold seminars on the new rules, and 2 million copies of the Gaceta Oficial will be printed up and distributed free of charge.
After the new regulations go into effect in December, cuentapropistas will have 90 days to adjust their businesses to the new realities. “This is a big, big step backwards,” Condis said. “The government is not encouraging entrepreneurship or the creation of new ideas and things.”
Follow Mimi Whitefield on Twitter: @HeraldMimi