As Cuba’s private sector roars back, choices and inequality rise | Business and Economy News

Güines, Mayabeque – “Capitalism must be abolished, parasitism must be abolished, human exploitation must be abolished,” shouted Fidel Castro in 1968 to thunderous applause, explaining his decision to ban almost all private business in Cuba.

For Castro, the fundamental problem is that capitalists live off the work of others – creating “man as the enemy of man” instead of an “instinct for unity” among people.

Now, more than half a century later – and after decades of anguished debate – Cuba’s Communist Party has allowed private businesses to spring up on the island. Since 2021, Cubans have been able to participate in small and medium-sized businesses that can employ up to 100 people. More than 8,000 have been registered.

The private sector is roaring back, bringing increased productivity but greater inequality to the island nation.

Roberto Rojas, who has a picture of Fidel Castro in his office, incorporated Rojas Dairy 18 months ago in the town of Güines in Western Cuba. Today, his company employs 28 people to make yoghurt and ice cream and unlike the former commandante, he sees no contradiction between a socialist state and private enterprise.

“On the contrary,” he told Al Jazeera. “We have examples in the world: Vietnam and China – they have sustainable economies.”

Rojas Dairy is something of a poster child of young, innovative, socially responsible businesses. It pasteurized the milk in large metal jars that Rojas found at the top of the trash and repaired. The factory was based in an old state canteen that had fallen into disrepair before Rojas gave it the paint and started renting it out.

Importantly, for a cash-strapped country where putting a decent meal on the table has become a more difficult task in recent years, business produces food.

Milk is purchased from the state, while cocoa, stabilizer and color are imported from abroad. The townspeople come with their own bottles and containers to fill with whatever yoghurt they can get. And thanks to local production, the town’s ice cream parlor, which has been closed for a decade, has recently reopened.

Rojas’ employees have a spring in their step and are well paid.

“The difference is huge,” said Jakcel Conteras, a former veterinary assistant who is now one of hundreds of thousands of Cubans working in the private sector. “When I worked in the state, I earned 800 to 900 pesos [$32-$36] in a month, now I earn 10,000 to 15,000 pesos [$400-$600] a month.”

Other small businesses have recently sprung up around the town center: mainly kiosks selling imported goods such as cooking oil, toilet paper and detergent. Some locals seem happy with the added choice.

“This is the best thing they’ve done,” Luís Alberto Rodríguez said of the government while shopping on his bicycle. Private businesses are “where you’ll find the most products – the [state] the shops are almost empty”.

Some complain that they cannot afford what is being sold. Most workers earn a state salary, paid in low-value pesos — when converted, the average wage works out to about $21 — while the private sector imports products using hard currency.

Expansion of the private sector

The expansion of the private sector has been on the agenda of the Communist Party of Cuba for more than a decade but the government has been extremely slow in implementing its program. Raúl Castro, president from 2006 to 2018, tried to push through changes but was met with resistance from the country’s leadership and bureaucracy.

Perhaps, as Marxists, in their heart of hearts, they believe that wage labor for the capitalist class is truly exploitative. Perhaps they are reluctant to go down the path of communist-ruled China where, four decades on from Deng Xiaoping’s reforms, a chasm separates rich and poor. Perhaps it is a concern that private businesses will create a new class of owners who will soon make challenging political demands.

Whatever the reason, enough people in powerful places cannot abandon what Raúl Castro calls “the old mentality”. There is, to borrow a term from the political scientist William LeoGrande, a “weakness of consensus around the reform project”, which prevents forward movement.

That changed a few years ago. The one-two punch of ratcheted-up economic warfare from the United States and the pandemic, which has shut down tourism, seems to have served as a factor.

As of 2020, the state will not have enough money to provide the population with the basic things it needs and Cubans will have to get used to standing in line for hours to get food. In this context, the private sector is boosting supply and is on course to import $1bn worth of goods this year.

The rapid growth of the private sector is a significant change in the economy that inevitably poses new problems. The main one is inequality, which is increasing.

Cuba, an island that for the past 60 years has emphasized social justice and remains one of the most equal countries in the Americas, has become a country where the salaries of successful new private businesses are many times what people can make in government jobs.

‘Dirty brain’

The Communist Party wants to keep the state acting as a “fundamental economic actor”. To this end, it decided to keep professionals – doctors, lawyers, architects – working for the state and prevent them from opening private practices. But this has created an odd situation where jobs that require qualifications often pay less than jobs that don’t.

“There is less concern about brain drain,” says Emily Morris, a development economist at University College London. “The new private sector seems to be absorbing people from the state sector in some cases, taking people from the state sector who are highly qualified and, in some cases, to do things that require less qualification but earn more money.”

The flight of talent from the state to the private sector also comes at a time when the island is plagued by record-breaking migration as many young people who see no future in the country choose to leave. Last year, more than 2 percent of the island’s entire population immigrated to just one country: the US.

“This is a serious problem,” said William LeoGrande, a government professor at American University in Washington. “This means there is a lack of competent people running the state. That means vacancies in key positions that are difficult to fill. And it means, in all likelihood, a deterioration in the quality of services provided by the state to the population.”

However, while aware of the problems, entrepreneurs see further expansion in the private sector as the only game in town.

As he walks through the workshop of his company Rutami, which makes didactic wooden toys, Yulian Granados exudes excitement when talking about his plans. Between swirls of sawdust as machines carved wooden blocks, he talked about how “satisfying” he found working for himself, unencumbered by state hierarchies and excessive bureaucracy.

The private sector, he believes, will never disappear and is now important to the future of Cuba. “There are opportunities everywhere you look,” he smiles. “If you want to create a product, there isn’t any competition. So there are many niches in the market to attack.”