Small business owners navigate regulations of socialist country

Roberto Caraballo Lopez trims a customer in his barbershop.
Photo by Riley Robinson

Story by Riley Robinson · 

HAVANA, Cuba – Black hair falls away in feathery clumps as Roberto Caraballo Lopez navigates chrome-handled clippers around his client’s ear to the nape of his neck. His hands are sure. His grandfather was a barber. His father is a barber.

But the difference three generations later is that Lopez owns his Cuban barbershop, marked proudly by the pair of licenses hanging on the right-side wall.

Lopez’s father, Pablo Caraballo Perez, once worked at a state barbershop but now works side by side with his son in this one-room salon attached to his house.

“As every human wants, I wanted to be independent,” Perez said. “The people who have their own businesses make more. Everyone knows this. The government knows this.”

Lopez and Perez are part of Cuba’s class of private entrepreneurs called cuentapropistas, or literally, “on your own-ists.” The number of these small business owners has grown exponentially since the government passed economic reforms seven years ago. The licensed private sector employs about 20 percent of the Cuban workforce, according to a 2018 report by the Brookings Institution, an American policy research center based in Washington D.C.

The same report estimates that another 20 percent of Cubans operate unlicensed, under-the-table businesses – either as their primary incomes or as a supplement to their state jobs – meaning they pay no tax on earnings. The result is a growing number of people who are confronting their socialist political identity with efforts to satisfy their basic economic needs.

In a country where the average monthly salary is about $25, a little extra money can make a significant difference, especially at times when necessities such as food and medicines are scarce.

“There is no political interest in having the private sector as the future of the Cuban economy,” said José Antonio Bedia, a history professor at the Centro de Estudiantes Martianos in Havana.

But whether privatization is in the state’s interest or not, an economic transition is under way.

Family businesses as captains of industry

To obtain a private business license in Cuba, one must choose from a list of 201 approved professions including electrician and palm tree trimmer, seamstress and ornamental fish farmer. These private business options became possible in April 2011, after economic reforms under President Raúl Castro.

Entrepreneurs must pay a flat license fee each month depending on their type of business as well as a fixed social security contribution every three months. They also pay progressive rates on their earnings – almost all of this comes to them as cash – at the end of the calendar year, ranging from 10 to 50 percent.

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Yordaine Collazo Perez in front of her home and store. Photo by Riley Robinson

Yordaine Collazo Perez, 33, pays 80 pesos, or about $3, each month for her license. She sells small ceramic trinkets and religious figurines out of her living room in Havana’s Vedado neighborhood. On sunny days, the sales table is moved out in front of the house with Mary and Jesus statues of all skin colors mixed with gold Buddhas and other deities. A chicken and a rooster, a leash on the leg of each, hunt and peck the ground around the inventory.

Perez, no relation to Pablo Caraballo Perez, pays a 10 percent tax on her income, but says she doesn’t know how officials would know what her, or any business, makes. Her accounting is a list of sales in blue-ink cursive in a spiral-bound notebook. Perez estimates she earns between 315 and 500 pesos, or between $16 and $25 a month.

“Either way, it’s like you’re working for the government once you pay for the license,” she said through a translator.

For her, the benefits of self-employment are more personal than financial. She has a 6-year-old son, and opened her business two years ago so that she could stay home with him. Now pregnant and also in the process of a divorce, she prefers her current work to her previous job serving food in a state cafeteria.

“Because I don’t like people giving me orders, I think it’s best to work for myself than the government,” Perez said. “It’s more comfortable.”

There are no “doctor” or “lawyer” options on the list of approved private professions – like Perez’s job, all are service or retail. Those with the highest earning potential, such as surgeons or scientists, must work for the state at capped salaries. This is one way Cuba manages equality in its economy.

For example, doctors who specialize in a specific kind of care – pediatrics, oncology – can earn around $60 each month and some nurses make about $40. Teachers earn about $35 monthly.

Before opening her used bookstore, Elsa Morell Ruiz, a 72-year-old retired nurse, was living off her state pension of 242 pesos each month, or about $12. She lives in a nook of Old Havana with two of her sons, ages 48 and 55, a 14-year-old granddaughter and their small white dog Mariposa, Spanish for butterfly.

Ruiz’s official ID card labels her “Bookseller #85.” She transformed the front of her apartment in 2012 with five tall wooden bookshelves that contain a variety of used titles in both English and Spanish: Castro biographies; mollusks, mammals and medicinal plants of Cuba; and one titled “Holy Lust.” She still collects her monthly pension, and sales usually bring in another 350 pesos, about $13.

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Ruiz inside her home and bookstore. Photo by Riley Robinson

Ruiz has used the extra income to buy a rice cooker and an electric fan. Small appliances like these usually cost about $15, or a little more than a month’s pension.

“Life is just a little bit more comfortable” with the extra money a private business can bring in, she said through a translator.

But some Cubans fear the growing private sector is changing the country’s values.

“People don’t acknowledge that these new social classes are forming,” said Enrique Gomez Cabezos, a researcher with the Psychology and Sociology Investigation Center in Cuba, referring to inequalities caused by private business. “There are going to be new kinds of inequality here. It’s something we should be concerned about,” he said through a translator.

However, others don’t see economic reforms changing the culture at all, because there has always been an underground cash economy in Cuba.

“Cuba has always been a very entrepreneurial country,” said Sebastian Arcos, associate director of the Cuban Research Institute at Florida International University and a Cuban emigre. “You can see it in Miami, in how many Cubans are running businesses here, both big and small.”

Cuba’s most common private businesses are restaurants and rooms for rent, catering to more than 4 million tourists who carry strong currencies. In August 2017, the government stopped issuing new licenses to rent rooms or open restaurants. The Cuban Communist Party said through its official newspaper Granma that the freeze was due to widespread tax evasion.

“We know that when we ask people about their incomes, most people will under-declare,” said Daybel Pañellas Alvarez, a social psychologist at the University of Havana.

Other suspended categories included construction services, private language instruction and CD or DVD retail. The government does not explain why licensing for some categories is suspended but not for others.

Cuba’s previous attempts at privatization

News of increasing privatization in Cuba often sparks international excitement and talk of a potential political shift. But the pattern of allowing and then freezing private business is common here, usually without any lasting, systemic change.

“Whether it happened in the ’80s, or now, Cubans run very quickly to the private sector once they get the green light from the government,” said Arcos.

After all businesses were nationalized in 1968, the Soviet Union held up the Cuban economy with exports of sugar and highly subsidized imports of oil. Then, when the Soviet Union collapsed in the early ’90s, the Cuban economy crashed with it. Out of desperation, Cuba legalized 117 private business categories by the end of 1993. That number grew to 157 types four years later, creating nearly 210,000 licensed cuentrapropistas.

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Perez’s rooster looking over the table of merchandise. Photo by Riley Robinson

Then, in 1999, Cuba found itself a new patron. Hugo Chávez became president of Venezuela and began a new Cuban subsidy program. Instead of trading sugar for oil, Cuba sent tens of thousands of doctors and teachers to Venezuela, receiving in turn over $5 billion a year. Exports of goods to Venezuela comprised 44 percent of Cuba’s total trade in 2012.

This patronage stabilized the economy, prompting the government to again shrink the private sector by halting licenses for 40 types of businesses including restaurants, rented rooms and language tutors – the most profitable trades. By 2005, the number of licensed private business was down again to 150,000.

But crisis struck again. Cuba’s trade with Venezuela began decreasing in 2010, according to a 2014 report by the Brookings Institution. Arcos says this new uncertainty is what prompted Cuba’s 2011 alineamentos, or new guidelines. “Cuba was looking for new patrons,” Arcos says.

But this time, Cuba stayed afloat thanks to its growth of private business. This time, the patrons have come from within.

Even when new business opportunities draw overall support, they don’t immediately benefit all Cubans, Alvarez notes. “Who perceives reforms as benefitting them?” she asked, then answered: “People who already have a position of advantage.”

A “position of advantage” usually means family in the United States or Canada who send money to use as capital, or offer to help bring in the supplies needed to open shop.

Caraballo, for example, made several trips to the United States and to Canada, where his daughter lives, to buy supplies like faucets, clippers and hair products to launch his barber shop. When he visits his daughter, she helps him navigate Amazon to order more supplies to her house. He flies home with them in his suitcase.

This divide between those who have capital and those who do not contradicts the very tenets of Cuba’s socialist society. While the economic landscape is changing, the main road from the airport to Havana still reads in red capital letters, “Socialismo o Muerte,” meaning socialism or death.

Somewhere between condoned and condemned

While the government reworks what is legal and what is not, there are some business owners who continue to operate in a gray zone: illegal but tolerated. Osbel Sanabria has been working as a tattoo artist in Havana since 2016, even though tattooing is technically not allowed here. Sanabria has no license and pays no taxes, but says his studio is “kind of famous in Cuba.”

Sanabria pulls out a brown masseuse table from under a desk in a small fuchsia-painted room. He wipes the dust off with a wet paper towel and begins wrapping the cushions in plastic cling wrap to prepare for his next customer. Rock music by Artic Monkeys blasts over the house while a friend strums an acoustic guitar on the front porch.

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Osbel Sanabria tattoos a client’s thigh. Photo by Riley Robinson

The house screams punk rebellion, from the stolen street signs hung inside to the vinyl stickers decorating the walls with skull logos and “Legalize Weed.” A white Chihuahua in a pink sweater scampers down the hall.

“We just make tattoos for a while,” Sanabria said. “The police don’t do nothing for a while.” He buys black-market American needles for 20 CUC, or about $20, from a friend, brought in a suitcase when someone visits the States. Customers find him by word-of-mouth.

But he also says that the Asociación Hermanos Saíz, a government agency for young artists, invites him to lecture new tattoo artists about how to properly sterilize their equipment.

Sanabria doesn’t worry much whether his business is legal or not. He and his friends are used to sudden changes in policy.

“Rules change in Cuba all the time,” he said. “You wake up in the morning and open your freezer, and half your breakfast is illegal.”

Sanabria likes tattoos for their artistic expression, but they are also a profitable business. He charges the equivalent of $10 to $50 depending on the intricacy of the design, and says he is fully booked two months in advance. In a day’s work, he can make a doctor’s state salary – which is why he has no intention to stop tattooing, no matter how precarious his legality.

“I’m going to make tattoos anywhere,” he said. “In my room, in my bathroom. Nothing can stop me. This train is on its way.”

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