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CUBA: Expansion of Self-Employment Poses Challenges for Socialist Model

Patricia Grogg

HAVANA, Aug 23 2010 (IPS) - The announcement of a plan to expand the practice of self-employment in Cuba as an alternative for the “excess” workers who are to be slashed from the public workforce presents several challenges to the socialist model that the government is seeking to modernise.

First and foremost, the alternative must meet the expectations of people who might be interested in getting involved in private enterprise and those who have been self-employed — known here as “cuentapropistas” — since the mid-1990s and now, with years of experience under their belt, could take advantage of newly legalised opportunities like hiring staff or setting up small businesses.

“Everyone hopes they will relax the rules for private enterprise,” a plumber who has a steady clientele after working for several years on his own commented to IPS. “They (the authorities) are apparently studying the whole question very closely.”

According to the National Office of Statistics (ONE), the number of people working in remunerated jobs in this Caribbean island nation of 11 million people rose last year to just over 5.7 million, including nearly two million women.

And the legally registered cuentapropistas, a sector that does not include farmers who own land, numbered 143,800 last year, 30,300 of whom were women. In 2004 they amounted to 166,700, including 39,600 women.

When the phenomenon was at its peak, in the mid-1990s, there were more than 200,000 cuentapropistas. But the number of people who were legally registered as self-employed gradually dropped after that, partly because the government did not renew permits for many activities that were initially allowed.

The plumber, who did not want to give his name, never applied for a permit because he worked in a public company until 2009 and, to boost his income, offered plumbing services on the side. “Last year my wife fell seriously ill, and I left the company to be able to take care of her. But I have never lacked work,” he said.

Like him, there are a significant number of Cubans who have chosen to work for themselves on the side, but without giving up their jobs in the public sector — and without registering as cuentapropistas.

“I hope that if I get a permit, my business and income will grow, because if they put in place a lot of restrictions or charge taxes that are too high, it won’t be worth it,” the plumber said.

The government decided to allow more people to work for themselves because it plans to lay off more than one million workers over the next five years as part of a “rationalisation” of the labour force.

President Raúl Castro said the measure would do away with “various existing prohibitions for the granting of new permits and the commercialisation of some production.”

It will also allow cuentapropistas to hire paid workers, which they are currently unable to do legally.

In his brief address to parliament on Aug. 1, Castro announced that in mid-July, the Council of Ministers had approved a tax regime for those who are self-employed, aimed at responding to the new economic reality and guaranteeing that cuentapropistas pay into social security, pay income and sales taxes, and pay taxes for hiring others.

Information on the new tax system has not been made public, however.

Cubans do not currently pay taxes on wages, with the exception of staff hired by foreign companies who earn significantly more than state employees.

People familiar with the labour system say legislative reforms supporting and facilitating self-employment, which can now include collective undertakings and joint administration by two or more people, are urgently needed.

Economist Omar Everleny Pérez said this new process must solve the problems that have burdened cuentapropistas, such as difficulties in purchasing inputs and materials, and the lack of credit or other financial aid mechanisms.

Pérez said it is feasible to once again consider the creation of small and medium-sized enterprises (SMEs), which were to be allowed in the mid-1990s, before such plans were scrapped.

He said SMEs fit within the concept of the broadening of the practice of self-employment, and could generate a wider range of employment alternatives, help improve living standards and boost incomes, and help descentralise certain areas of production and services.

Another benefit mentioned by Pérez in a not-yet published research study seen by IPS is the increased offer of goods and services. The economist underscores that at a global level, there is a growing tendency towards SMEs in productive sectors.

SMEs are flexible and depend on highly qualified labour, one of Cuba’s main advantages, said Pérez, who said they are also highly competitive.

He added that the government is studying the possibility of allowing some kinds of SMEs.

Several economists suggest the possibility of associations between cuentapropista companies and the state, or between self-employed individuals and cooperatives, that would allow production and its benefits to be more widely socialised.

“Cuba has to turn its economic situation around in the next few years, and given the lack of capital in the economy for a broad process of investment by the state…SMEs could play a complementary role,” Pérez says in his study.

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