Vol. 12, No. 10 October 2004 www.cubanews.com In the News Cuba’s elusive underground economy provides important goods and services More than maple syrup Vermont sells Alimport $7 million worth BY LARRY LUXNER economy are nearly impossible, given publicly available information,” he said. “Only direct ob- of milk, apples and cows ...............Page 3 rom watch repairmen in Holguín and ice- cream vendors in Sancti Spíritus to lock- servation and generalization from anecdotal evi- F smiths in Matanzas and prostitutes selling dence is possible at this time. But Cuba’s under- OFAC’s blacklist themselves along Havana’s Malecón, Cuba’s so- ground economy is so obvious that it’s frequent- Publishers, writers say obscure Treasury called “underground economy” is evident near- ly observed by tourists and journalists.” ly anywhere you look. In the United States, he told ASCE delegates, rule smacks of censorship ...........Page 4 Yet trying to get a handle on its size or eco- the “shadow economy” constitutes only 8.7% of nomic impact is extremely difficult, given the total GDP — a percentage that rises to 15.8% for Chile’s juice mogul scarcity of reliable Cuban government statistics Canada, 18% for Western Europe and an astounding 41% for Latin America. Veteran leftist Max Marambio cashes in and the reluctance of those operating outside the official economy to talk about their some- “In most countries, policymakers view the on his Cuban connections ............Page 6 times illegal activities in detail. underground economy negatively, but not in Archibald R.M. Ritter is a professor of eco- Cuba’s case,” he said. “The underground econo- Not an easy year nomics and international affairs at Carleton Uni- my produces a lot of relatively low-cost goods versity in Ottawa. A former Canadian ambassa- and services for the Cuban people, and it evades All in all, 2004 is shaping up to be a tough dor to Cuba, Ritter conducted an informal sur- direct taxation, but not indirect taxation.” year for the Cuban economy ........Page 8 vey of self-employment in Cuba between Feb- Ritter added: “Like other countries, Cuba has ruary and April 2003, and presented his findings an underground economy, but it includes enter- Diplomacy at work at the recent Association for the Study of the prises that are legal everywhere else.” These Cuban Economy (ASCE) meeting in Miami. include household activities like child-rearing, Cuba wins respect overseas in effort to “Conventional measures of the underground See Underground, page 2 counter U.S. pressure ...................Page 9 Port problems Power blackouts threaten GDP growth Cuba’s ports need big investment to han- dle future cargo volumes ............Page 10 as factories are shut to save electricity BY OUR HAVANA CORRESPONDENT Business briefs Castro, warning that supply problems could ubans — plunged into darkness for five persist for another five months or more, prom- Israeli-run citrus venture expects record hours a day or more — have one main ised to invest in new capacity and suggested that strict measures be taken to regulate elec- crop; Bacardi USA indicted ........Page 12 Ctopic of conversation lately: blackouts. Earlier this year, the power situation had tricity supply for residences and small private improved considerably, but by late May, author- businesses consuming large amounts of power. Ripping off the regime ities began cutting electricity again. The hot Lage announced that the state would close 118 factories in an effort to conserve energy. To survive, Cubans steal from the state, summer months, which locals found more suf- focating than ever, made things even worse — This includes Havana’s Antillana de Acero steel often in clever ways .....................Page 14 and not even hurricane damage can be blamed mill and the Artemisa cement plant in La for the current disaster. Habana province. The H makes debut An in-depth official explanation came only last School and work hours will be cut by 30 min- utes for a 4-month period starting Oct. 25, while New upscale lifestyle magazine to appear month, when three TV programs featuring Pre- sident Fidel Castro, Vice President Carlos Lage, indoor lighting in workplaces will be reduced on U.S. newsstands Dec. 8 .........Page 15 Lt. Col. Nestor Borrero of the Interior Ministry and the retail sector — except for restaurants — and other top officials addressed the issue. will shut down at 7 p.m. The energy situation is so serious, according CubaNews (ISSN 1073-7715) is published monthly “We are all to blame. We have a weak sys- by Luxner News Inc. © 2004. All rights reserved. tem,” Castro told a national audience on the to Lage, that the current schedule of power cuts Subscriptions: $429/year. For subscription or edito- “Mesa Redonda” TV talk show. “The socialist will be maintained until October 2005. This rial inquiries, call us at (301) 365-1745, send a fax to means power cuts for residential areas lasting (301) 365-1829 or e-mail us at [email protected]. state is subsidizing this electricity which costs them 10% of what it costs us to produce.” See Blackouts, page 7 2 CubaNews ❖ October 2004 the strong who are surviving,” he explained at And such activities are likely to remain Underground — FROM PAGE 1 the ASCE conference. “Remember that they totally outside the law as long as Fidel Castro cooperative work around the home and the started in 1993, and the peak of 209,000 was is in power. barter of legal goods and services. reached in 1996. At that point, the govern- Ted Henken, a professor at Baruch Col- The underground economy also encom- ment revived the income tax, so that obvious- lege, has outlined four distinct stages in the passes “private economic activities embedded ly had an impact, taking out a certain part of Castro regime’s changing policies toward the within the state sectors, like manicurists and those who were marginal. At the same time, Cuban private sector: elevator repairmen who will provide service if there was also an increased effort to enforce The first (1959-70) saw the rapid and near- you give them a bonus,” as well as criminal regulations.” total eradication of the private sector, with activities such as the selling of stolen goods. Some of those regulations would hardly be Cuba’s last 58,000 small businesses national- Among factors that promote the growth of considered objectionable in a capitalist coun- ized in 1968. The second stage (1971-85) saw any nation’s underground economy: the in- try, i.e., imposing sanitary regulations for the gradual reintroduction of material incen- tensity of regulations; the burden of tax and street food vendors; others are quite objec- tives and small-scale private enterprise. social-security contributions; social transfers tionable, like not letting owners of paladares The third stage (1986-89) marked the “rec- that permit individuals to work unofficially; a (private restaurants) serve beef or shrimp. tification process” and the eradication of pri- very high tax on such transfers should the Yet many cuentapropistas operate without vate markets and material incentives. The individuals graduate from the underground any serious problems to speak of. fourth and current stage (1990-2004) is char- economy into the formal economy; forced “They have a simple business, the regulato- acterized by the re-emergence and unprece- reduction of official working hours; early ry scheme is simple, and their business is not dented importance of the private sector. retirement, and high unemployment rates in competition with the state,” Peters ex- Yet overshadowing everything in Cuba is which push people into the informal economy. plained. “For instance, I met a guy in Cabar- the “recurring tug-of-war between radical There are also social and psychological fac- tors at work, especially if people feel the gov- ernment is treating them badly. “All these factors exist in an extreme way in the case of Cuba. The tax system is excruci- ating for cuentapropistas,” said Ritter, lament- LARRY LUXNER ing the fact that “all of this entrepreneurship is being frittered away.” “A reasonable policy would be to legalize these activities, but that’s not going to be done for some time,” he said. “Many activities that are normally permitted elsewhere are prohibited entirely in Cuba, or limited through the refusal to grant licenses to appli- cants, who then must operate clandestinely if they are to exist at all.” CUENTAPROPISTA LICENSES DOWN SHARPLY Roadside vendor illegally peddles onions near Havana; dollmaker sells her creations in Sancti Spíritus. In 1996, according to official figures, 82.3% ien, a tire repairman who’s also an evangelist. communist ideology on one side and econom- of the 46,248 applications for self-employment His tax is only 80 pesos a month, and he ic pragmatism on the other,” says Henken. licenses were granted. By 2001, only 23,531 of clears nearly 2,000 pesos. I also spent time in “Radical Guevarist ideological campaigns the 97,687 applicants got their cuentapropista the apartment of a family who had a very suc- that target the private sector have often been licenses, translating into an approval rate of cessful lunch stand, selling roast pork sand- carried out as ends in themselves, regardless just 23.9%. wiches and making 2,600 pesos a month. of their impact on the economy,” he said. “If Phil Peters, vice-president of the Lexington Another example is a woman in Vedado who there is a hidden agenda behind the ideologi- Institute, has spent several years researching sells ice cream with help from two assistants.” cal justifications of anti-market campaigns, it Cuba’s self-employment sector. Overall, said Peters, the conclusions he is not economic but rather political. The In an informal survey of 61 cuentapropistas reached in 1999 are still basically true when it growth of the private sector has correctly — 31 of whom operate in pesos and 30 in dol- comes to self-employment in Cuba.