Cuba's Raul Castro sets up framework for jobs market, small-business sector

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By Marc Frank
Monday, November 1, 2010; 6:37 PM

HAVANA - Cuba has moved to shake up its complacent labor force, with President Raul Castro putting in place the framework for a rudimentary jobs market and a small-business sector.

By publishing laws governing layoffs, drastic cuts in unemployment benefits and the development of small businesses, the reform-minded president has taken the biggest steps to date to modernize the economy.

"It is the law now. There is no turning back. I think it is positive and gives me hope reform has begun in earnest," a local economist said, speaking on the condition of anonymity because of prohibitions on talking with foreign journalists.

However, the development of small businesses will take place within a state-dominated system and is expected to be slow and messy as bureaucrats stall and seek bribes, financing and supplies go lacking, and people maneuver for position as they adjust to new circumstances.

The self-employed, often a euphemism for small business, can now hire labor, rent store fronts, do business with the state and seek bank credits, among other novelties. Granma, the Communist Party newspaper, said the new freedoms would "distance ourselves from those conceptions that condemned self-employment almost to extinction and stigmatized those who decided to join it, legally, in the 1990s."

However, the number of reports required and monthly quotas and taxes remain onerous in a country where most people have no car or telephone. Regulations on the types of businesses allowed are also restrictive. Self-employment, first authorized in 1994, was called a "temporary concession to capitalism" by then-President Fidel Castro, who limited licences and regulated and taxed the self-employed almost to extinction.

The term covers everything from the building trade, clowns, nannies, barbers, beauticians, and private taxi and truck drivers to small businesses such as home-based bed and breakfasts and restaurants, pizzerias and garages.

Christina, a licensed hair stylist, said she welcomed the chance to start a beauty parlor for her clientele, many of whom are diplomats, their wives and better-off Cubans. "I'm already planning to rent a store front and hire staff, though I bet it will be a lot of work and time before it all comes together," she said, speaking on the condition of anonymity.

Christina said she had to fight for a copy of the rules and regulations last week, as Cubans snatched them up as quickly as they appeared at newsstands.

The reforms aim to legitimize and tax illegal small businesses and provide jobs for government employees about to be fired as the state trims bloated payrolls and retreats from some secondary activities in favor of private business, cooperatives and leasing arrangements. The first round of 500,000 layoffs will take place in March.

Pedro, a carpenter who has worked for years without a licence, gave up trying to get a copy of the regulations. "I'll hear about it and then decide what to do. As long as the taxes are not too bad, I'll get a license to avoid all the hassles with police and inspectors," he said.

Granma warned in a recent article: "Those who continue working on their own without papers, or do not pay the required taxes, will feel the weight of the law imposed upon them by those mandated to enforce it, the National Tax Office."

Pedro said he and two carpenter friends shared four machine tools sent by relatives in Miami. "Who knows? Maybe we will get a bit more help from over there, rent a place and go into business someday," he mused. The new tax code for small enterprises, published last week, increases deductibles for business expenses from 10 percent to up to 40 percent. It includes a new 10 percent sales tax and 25 percent social security tax, also deductible before payment of a graduated income tax that ranges from 25 per cent to 50 per cent of earnings.

But most striking is the new payroll tax on a sliding scale from one to "more than 15 employees," along with regulations governing the hiring of labor by private farmers. This represents a small revolution in a country where article 21 of the constitution states one's property and instruments of work "cannot be used to obtain earnings from the exploitation of the labor of others."

- Financial Times


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