Cuba reforms: Small businesses spring up in Havana By Michael Voss

BBC News, Havana Published duration 26 March 2011

image caption Daely Asan's stall sells everything from hair bands to scouring pads

Something is happening on the streets of Havana that hasn't been seen for years.

Small businesses are starting to appear everywhere.

It is part of the first major shake-up of Cuba's struggling Soviet-style economic model since the 1960s, and private enterprise is no longer a dirty word.

In communist-run Cuba, 85% of the population is employed by the state.

But now the government is issuing 250,000 licences to would-be entrepreneurs and the interest is enormous.

Lazara Barreras used to work in the accounts department of a state enterprise. Now she has a small market stall selling bootleg DVDs and CDs.

"I'm never going to be a millionaire but it's enough to get by on," Ms Barreras says.

All the films and albums she is selling are pirated copies of the originals.

Boosting employment appears more important than copyright for the state, though the authorities would argue that it is all down to the US trade embargo since they are not allowed to import them anyway.

Street of sellers

Ms Barreras is working out of the front porch of a house on 114th Street in the Havana district of Marianao.

There is a large hospital opposite, so it is a busy street that has always had a mix of small shops, food stands and homes.

Being allowed to rent space in your home to these small businesses is another new development.

Eddy Callejas proudly shows off his first ever rent book. He is one of three people on this block who are leasing their front porches or verandas to street sellers.

"It's just a start. Now you can rent space for people to sell their merchandise. Perhaps later I can offer a better set-up, creating new facilities to benefit both the landlord and the tenants," Mr Callejas says.

He has two tenants, Ms Barreras the DVD seller and Daely Asan whose stall offers everything from plastic hair bands to scouring pads and batteries as well as a range of cheap costume jewellery.

"It gives me a lot of options I never had before. You have your own work and keep your social security. It counts towards my pension. I think it's a very good option," says Mr Callejas.

Since the beginning of the year, 10 new private businesses have sprung up on this one block alone.

These include a watch repair man, a barber shop, a stall selling new and used plumbing supplies along with a second DVD/CD stand and another mixed plastic goods stall.

There are also two tiny cafes. One is a hole-in-the-wall snack bar selling sandwiches and soft drinks through a window that fronts onto the street. The other sells some cakes and pastries as well.

They are competing side by side with subsidised state shops. The biggest queue on the street is at a state-owned food outlet selling cheap, freshly made and very tasty-looking cheese pies.

Competition in this new mixed economy is likely to be fierce.

Big shift

Taxes are high and there remains a lot of red tape. Under the new rules people can even hire a limited number of workers, though to do so they have to pay a hefty fee to the state.

So far, promised bank micro-credits and access to wholesale supplies have yet to emerge.

image caption Lazara Barreras decided to set up shop for herself

In developed market economies, roughly half of all new start-ups fail in the first year. The figure is likely to be higher here.

But it does signal a significant ideological shift from the past.

"The vast majority of Cubans have never met a Cuban capitalist or a small businessman because they were born under this system," says Rafael Hernandez, editor of Temas, an official magazine which covers issues relating to culture, ideology and society.

But Mr Hernandez believes that it is time "to re-think our socialism and give the non-state sector the importance they deserve. They are part of us."

Shortly after the revolution in 1959, Fidel Castro started expropriating all the major industries, banks and farms, many of them American-owned.

Ten years later he went further, nationalising almost all jobs from barbers to bricklayers and everyone from doctors to street cleaners were paid the same.

The aim was to create a new man, based on moral not monetary incentives. It has proved a costly experiment.

Today wages are low, barely $20 (£12) a month. In return, the state takes care of everything from health, education and housing to a ration book with heavily subsidised food.

Without incentives, productivity is low and in these tough economic times the government can no longer afford such a generous welfare state.

First shoots

Once before, after the collapse of their main benefactor, the Soviet Union, the Cuban authorities allowed a limited number people to open small family businesses, mainly restaurants and guest houses catering to tourists.

image caption Cuba's economic landscape - evolving or set for radical change?

But they were treated as necessary evils and many were forced to close once the economy picked up.

This time Cuban President Raul Castro says it will be different.

"The Communist Party and Government need to facilitate their work rather than generate stigmas and prejudices against them, much less demonise them," President Castro said in a recent televised address to the National Assembly or parliament.

Encouraging self-employment is part of a broader reform package aimed at kick-starting the island's struggling state-run economy.

The first Communist Party Congress for 14 years is due to take place in April to ratify the changes, some of which will be painful, that Mr Castro is proposing.

Subsidies, including the ration card, are being phased out, and more than a million workers could lose their state jobs.

The lay-offs, however, have now been delayed. The government appears uneasy about potential social upheaval and does not have its alternatives in place.

The original aim was for many of those laid off to become self-employed.

So far, the majority of the people who have applied for licences are pensioners, housewives and those who were already working for themselves on the black market. They have now been legalised and made to pay tax.

The proposed changes are a long way short of China's free market reforms. Raul Castro has pledged that this is not a return to capitalism.