HAVANA (Reuters) - Cuba’s slow, cautious reforms to revive its state-run economy suddenly burst into life at businesses like Karabali, a Havana nightclub owned by a 21-member cooperative.

A farmer plows the land with two oxen in La Lisa on the outskirts of Havana March 28, 2014. REUTERS/Jorge Luis Banos

The communist government began leasing Karabali to its employees just six months ago and now the once sleepy club is regularly packed with more than 100 customers from midnight until dawn despite competition from dozens of private and state-run night spots in the city.

Out on bustling 23rd Street in the Vedado district, bright multicolored lights beckon a young, almost entirely Cuban crowd into Karabali to see live music on weekends.

Even on Wednesdays, when only recorded music plays, the place is jumping as hip-swiveling patrons dance on stage to rumba.

A feeling of ownership has replaced the apathy that afflicts many state enterprises, and the cooperative’s members are optimistic. There is a buzz about the place, their salaries have been tripled, and they get a cut of the profits.

“We have more of a sense that this belongs to us,” said Heydell Alom, who has spent 11 of his 38 years tending bar at the club. “Here no one steals. This place belongs to everyone. We earn depending on what we can accomplish without any problems from the government.”

Cuban authorities are turning more and more state businesses into cooperatives and providing incentives for small private companies to do the same. Some 450 have been created over the past year, and there are plans for thousands more.

The initiative is one of the market-oriented reforms ordered by President Raul Castro since he took over from his ailing brother Fidel in 2008.

While Raul Castro says his reforms are about strengthening Cuban socialism, they have led to the emergence of thousands of private businesses since 2010, ranging from restaurants to electronics repair shops to mom and pop retail outlets.

Less well known and less common are the cooperatives but they are part of a political balancing act for the government, which needs to move hundreds of thousands of workers off the state payroll but also wants to slow the rise of capitalism.

In many ways it prefers cooperatives, where each worker has a stake in the business, to private businesses where owners make profits based on the work of their employees.

As is typical with Cuban reforms, the push to establish more cooperatives has started as an experiment that will be expanded if it is deemed to be successful.

Its supporters see it as a way of allowing free enterprise, like other communist governments have done, while limiting an inevitable surge of income disparities.

“The model is different from China and Vietnam,” said a Cuban economist who specializes in cooperatives. “We have the advantage of learning from their experience.”

No other county has tried to convert state companies into cooperatives on such a large scale, said the economist, who requested anonymity due to a ban on speaking to journalists without permission.

The cooperatives include restaurants, cafes, wholesale and retail produce markets, construction firms, manufacturers of clothing and furniture, bus companies and car washes, recycling operations, body shops, computing and accounting services, beauty salons, night clubs and even dealers of exotic birds.

They operate independently of state entities and businesses and set prices according to the market in most cases.

Some have thrived. Others have yet to grasp what it means to compete in the marketplace.

LESS THAN DIVINE

The Divina Pastora restaurant enjoys prime real estate beneath the historic Moro Castle, a tourist attraction with a spectacular view of the capital across Havana Bay.

Though the place fills up at lunchtime with busloads of tourists visiting the castle, evenings are another matter. On one recent Saturday night, it was nearly empty despite perfect weather.

No one from the cooperative had suggested a plan to attract a dinner or late night crowd in order to improve profits, according to one member, a young woman waiting tables.

The restaurant is a former state enterprise that closed last year and reopened as a cooperative, yet the new staff was never given a chance to select its leader

“How can we elect the administrator when he was the one who hired us?” said the woman, who declined to give her name and didn’t seem to know if he was also new or the only remaining staff member of the place from when it was run by the state.

Karabali, which lies across Havana Bay, is a clear success.

The club is in a prime location on a strip where thousands of young people go out to have fun from evening to dawn, strolling 23rd Street from the famous Copelia ice cream parlor and former Hilton hotel down to the seaside drive.

The 21 cooperative members plan to remodel Karabali, starting with the cafeteria, which was left in shambles by the state.

“After finishing the cafeteria we plan to invest our money to make other improvements,” said Alom, the bartender.

Each member of the cooperative earns 750 pesos ($31) a month, three times the 250 pesos they received when it was state-run. They also divide up the profits every three months.

“We are free from the regulations of state businesses,” said the cooperative’s accountant, Ariel Rodriguez. “We all feel this place is ours. No extraterrestrial tells us what is good and bad, when and how to pay wages, what artist we can hire or who will do our repairs and remodeling.”

MIXED BAG

Most of the cooperatives visited by Reuters fell between the extremes of the Divina Pastora and Karabali.

The Bella Bella 2 de Belleza Cooperative, once a well known state-run beauty parlor in Vedado, has been reborn as a cooperative and competes with private businesses by appealing to a less affluent clientele.

“We have set prices higher than when we were a state company, but less than prices on the street (at private businesses),” said hair stylist Sandra Menendez, who now makes 7,000 pesos ($292) per month as a cooperative member, compared with 400 pesos ($17) plus tips when she worked for the state.

But others at the 27-member cooperative grumbled about a domineering former administrator turned president, or about their pay.

“We have some benefits, but my salary is more or less the same as when this wasn’t a cooperative,” said Danisley Napoles, a manicurist whose job is less specialized than that of a stylist and brings in less revenue.

The law governing cooperatives allows for an unlimited number of members and the use of contracted employees on a three-month basis. Members elect their officers and also participate in decisions ranging from pay scales to investment.

“Cooperatives have priority over small private businesses because they are a more social form of production and distribution,” Marino Murillo, who heads the Communist Party’s commission to revamp the Soviet-style economy, told the National Assembly in December.

Murillo said they paid less taxes and had some access to the state’s wholesale system while private businesses have to buy their supplies at retail markets and outlets.

Still, it is the government that makes the decision on whether a state business is turned into a cooperative and the existing employees are given no say. They either accept it or are laid off.

That top-heavy approach, a lack of adequate training and Cuba’s poor business environment all weigh on cooperatives and their success or failure depend largely on how well prepared their leaders and members are.

A state television program called the Culture of Cooperatives runs on Sundays, focusing on their history, the law and management. The Cuban economist said the show is a good start to giving cooperatives training but that the government needs to do more to help them succeed rather than rush to create them without proper support.

“They should put on the brakes a bit, move slowly and put more emphasis on quality over quantity,” he said. “And most of all, improve training.”