Cuba: Regulating Revolution

Economic crisis leads to laws that are "not nice" for everyone

By Genevieve Howe

 

The Cuban economy of the 1990s, while nothing like that of the 1980s, is no less complex or full of contradictions. The combined effects of economic crisis and the U.S. government’s embargo have pitted individual interests against common interests as never before in 39 years of revolution. Since 1989, when the current economic crisis known as the Special Period began, Cuba has implemented countless economic reforms. While life is better in Cuba than it was during the worst of the crisis, the government and citizens alike are still feeling their way toward economic survival. Some of the reforms paved the way to new economic activities for individuals, both desirable and undesirable.

Within just 30 days in the spring of 1997, the Cuban National Assembly took several actions to curb some of these new activities. It passed laws that: (1) monitor and tax home restaurants and other self-run businesses; (2) control and tax the rental of rooms, apartments, and houses, especially in areas heavily visited by tourists; and, (3) limit migration from surrounding provinces into the capital city, Havana.

To some, these laws look like a government crackdown on a small minority of successful entrepreneurs, guilty only of competing with state businesses. To others, they are the latest example of ineffective government intervention into the daily lives of citizens. To still others, they are a welcome sign that the government will regain the resources to continue free health care, education, social services, and subsidized housing—and thus, "defend the achievements of the revolution," as Fidel is fond of saying.

Ramon de la Cruz Ochoa is president of the Constitutional and Legal Affairs Commission of Cuba’s National Assembly. He recognizes that some people feel these new laws infringe on their civil liberties. "These are not nice laws like the agrarian reform law which everyone applauded," he remarks.

 

The Journey From There To Here

From the time the revolutionary government came to power on January 1, 1959, it struggled to address problems of malnutrition, disease, illiteracy, and inequities of wealth. By the 1980s, Cuba rivaled or surpassed many developed nations with a life expectancy of 75 years, an infant mortality rate of 9.5 per 1,000 live births, and a highly educated population.

The 1989 collapse of the Eastern Bloc dealt a disastrous blow to Cuba. Between 1989 and 1993, Cuba lost 75 percent of its imports and the economy contracted by 35 percent. Not that dependency on the Eastern Bloc was Cuba’s fault. The stringent U.S. embargo had left the small island few options for trade partners. The Torricelli and Helms-Burton laws, passed by the U.S. Congress in 1992 and 1996 respectively, further tightened the embargo and restricted Cuba’s ability to reconstruct its economy.

In the early 1990s, many industries shut down due to shortages of energy and materials. Agriculture lacked fuel, fertilizers, and pesticides. Severe food shortages were experienced across the country. Fuel shortages brought transportation to a virtual halt. Hospitals were hard hit by power outages and scarcities of medicines and disposable supplies. Offices and schools suffered from a lack of pens, pencils, paper, and books. Illegal market activity increased. The peso devalued.

Cooking oil, soap, shoes, clothes, and light bulbs virtually disappeared from rations, and yet became abundant in the growing number of state-run dollar stores. Appliances like fans, televisions, and refrigerators, once made available to outstanding workers for purchase in pesos, were found only in dollar stores. The average Cuban salary of 200 pesos per month was, and still is, worth less than $10 and narrowly furnishes a month’s supply of cooking oil and soap.

In its attempt to respond to the crisis, the government hustled to bring in dollars. It stimulated foreign investment and expanded the tourist, biotechnology, mining, and sugar industries, among other measures. It also opened up legal work opportunities for individuals. Between 1993 and 1995 alone, the Cuban National Assembly legalized possession of U.S. dollars, established government houses for the exchange of U.S. dollars and Cuban pesos, opened farmers’ and craft markets, expanded legal self-employment from 29 to 155 professions, and legalized paladares (home restaurants, a term from a popular Brazilian soap opera).

As many had predicted, these measures triggered new crises for the government—and opportunities for enterprising Cubans. The development of tourism brought in hundreds of thousands of foreigner visitors (1.2 million in 1997) and, with them, demands for more taxis, tour guides, restaurants, snack foods, and lodging options. In the face of extreme difficulty in meeting basic needs, some Cubans sought ways to provide these services. Once possession of U.S. dollars was legalized, incentives to profit from tourism were even greater. Some Cubans rented rooms in their homes to tourists. Home restaurants proliferated without taxation or health and safety monitoring. Prostitution and theft also increased.

Migration to cities and other tourist areas began in earnest during the Special Period. Havana and other urban areas became more and more crowded. The capital city could not accommodate additional demands for jobs, transportation, food, water, or sewage disposal. Overcrowded, deteriorated buildings collapsed, killing and maiming scores of people, especially in Old Havana.

The government became concerned, not only about urban crowding, but also that state hotels and restaurants were losing desperately needed dollars. In 1997, the government decided to act.

 

The Laws Of Self-Employment

In 1995, 250,000 Cubans were self-employed in such professions as carpenter, plumber, taxi driver, mechanic, hair dresser, and owner of a home restaurant, café, or pizzeria. Most did their business in dollars. While regarding self-employment as a potential source of tax revenue and a generator of new jobs and vital services, the government was concerned about several issues: the loss of business to state hotels and restaurants, the exposure of tourists to "criminal elements," the brain drain of professionals departing to self-employment and tourism jobs, and the ability of individuals to become wealthy.

A 1996 law had established an array of licensing procedures, monitoring requirements, and taxes for the self-employed, including: no one can employ anyone else, but family members may work as assistants; inspections are made for fulfillment of labor laws and accuracy of financial transactions; places selling food and beverages are also subject to health and safety inspections; products may be purchased only at government sponsored dollar stores or farmers’ markets; and, businesses can be run in either U.S. dollars or Cuban pesos, but licenses and taxes must be paid in the same currency. Regulations specific to paladares include: no more than 12 people may be seated and no lobster or shrimp may be served. In 1997, the National Assembly stiffened the taxes. The number of people legally self-employed today has dropped to about 170,000.

Perhaps as many as 2,000 paladares opened their doors within a few months of their legalization in June 1995. No one knows how many remain today, but estimates are far fewer than half. "Perhaps 60 to 65 percent of the paladares have closed," according to Jorge Miyares, director of Radio Havana Cuba’s English Department. "But, bear in mind, businesses anywhere often last only two or three months."

Miyares thinks the new laws are necessary. "Paladares were legal before they were taxed—and some people made a lot of money from them. What we’re seeing is not a crackdown. It’s a matter of giving order to what was happening, so that no one becomes a millionaire."

One business that closed was the pizzeria of Pedro and Dinora, who decline to give their last names. For about two years, Pedro and Dinora made a living selling pizzas from their home near a popular dollar store in Central Havana. They folded their business in 1997 because of high taxes and because they were fined. Their downfall was using government rationed cheese instead of dollar store cheese. "The dollar stores sell cheese for U.S. $3.60 to $3.70 for 400 grams," Pedro easily rattles off the numbers. "At 22 pesos to the dollar, that’s about 90 pesos per pound and you end up losing. Of the six pizzerias that were in this block, two are left."

Pedro and Dinora are frustrated with changing regulations, as well as increasing fines and taxes. "They fine you for using Cuban products, for selling in dollars, for having dirty dishes. It wasn’t worth it. Why should we be involved in that?" Pedro adds, "You can run your business in dollars, but a dollar license costs you much more. Sometimes people get into dealing with dollars indirectly—a customer hands them a one dollar bill and they give the change as 12 pesos. They shouldn’t do this, but they do."

"Taxes began at 200 pesos per month and then went up to 400, then 500 per month for those who sell the 5 to 6 peso pizzas," Pedro laments. "They demand 1,000 pesos per month in taxes for those who sell the large pizzas like we did for 10 pesos each. We had to sell 100 pizzas each month just to pay the taxes. Why should I work just to pay taxes?"

Enrique Cabrera, who runs the El Timón paladar in Central Havana, has also seen restaurants close. But he doesn’t think this is necessarily bad. He is a retired Merchant Marine captain who traveled extensively around Asia, Latin America, Africa, and Europe. He is familiar with capitalism and believes that competition results in the survival of the best operations. "The private sector gives people more places to go eat and shop. It’s more efficient than the government. State restaurants charge more for less," says Cabrera.

Yet, he acknowledges that taxes are high and food and beverage supplies are expensive. "The law says we can buy things only in farmers’ markets and in dollar stores. We have asked for our own store with more reasonable prices, so that we can keep our prices down."

Cabrera explains why some of the self-employed are having such a hard time with the new regulations. "We lived for many years without taxes. We are ignorant about them. Having taxes again feels like an imposition. Some people might think they are unfair or excessive. Really what happened is that Cubans forgot about taxes over the past 40 years."

While supportive of the revolution, Cabrera is also supportive of steps toward capitalism, "Private business has alleviated some problems. It has provided an additional source of work. I have ten people working for me. If these jobs are eliminated, the state must find work for all these people. Otherwise, we will see more unemployment and more crime."

As capitalism blends with socialism in Cuba, a growing concern is brain drain from state enterprises. Some of the best and brightest are leaving their government jobs to work in paladares or drive taxis or seek out hotel jobs where they can earn two to seventy times their state salaries. Cabrera noted, "The family members who work for me are one professional, two financial analysts, a doctor, a lawyer, and an engineer. I pay 40 pesos per day or 1,200 per month to each of them, whether they are cooks or waiters. Each worker pays 300 pesos in income tax to the state and is still left with twice the salary of a doctor."

Some of the self-employed have found ways around the new maze of regulations. Vicente is a wood sculptor who sells his work in an open-air market on Havana’s sea front boulevard, the Malecón. To have one small booth, he pays 45 pesos per day. For his license, he pays $100 dollars on top of 300 pesos per month. In addition, he pays a year-end tax determined by the amount of his business.

Vicente describes the artisans’ secret of success, "Not many of us have had to close because what we do is join together. Two or three share a license in the name of one. I work with two other sculptors. This is an advantage that paladares or cafés don’t have. We pool our artwork and take turns selling it." Sharing a license is not legal, but it is difficult for authorities to determine that other artists are behind the work displayed in a given booth.

Some people are wholly supportive of the reforms. Sonia Giraudy is a housewife and Communist Party member who describes herself as siempre firme (always devoted) to the revolution. "The people who happen to live in the tourist zones of this country don’t have the right to get rich," she exclaims in her steamy kitchen. "I want tourists to come, but I want their dollars to go to the state where they will go to schools, hospitals, social security, and new houses," she said, glancing around her crammed, deteriorating home.

Giraudy is not against private businesses, but she wants them to pay taxes. "Many people refuse to pay taxes, but around the world, this is what people do. It’s an obligation they have. People who run paladares or drive taxis also get free education, free health care, free social security, and subsidized housing. They should help pay for those benefits."

 

The Rent Law

By the time the Special Period began, most Cubans owned their own homes. It became legal to have dollars in 1993, rations and peso salaries failed to meet basic needs, tourists were looking for options to high-rise hotels, so why not rent? An ambiguous 1984 law had allowed temporary private rentals to up to two families. A 1988 law had allowed rental of up to two rooms, but still without any monitoring or taxation.

According to Ramon de la Cruz Ocho, "Thousands of people were doing this, and they weren’t just renting out two rooms, but in some cases, their whole apartment or house, even though that was illegal. Many people were making a lot of money."

In May 1997, the National Assembly passed a law regulating the rental of rooms, apartments, and houses. Those who rent in dollars to foreigners must pay $100 to register with the government. Taxes are $200 per month for those renting in tourist zones, and $100 per month elsewhere—whether the unit is occupied continually or not. Those who rent to Cubans pay the same numerical fees, but in pesos. Owners who rent to foreigners must keep a log of the guests’ names, passport numbers, and dates of stay. Those who rent to Cubans for over three months do not pay taxes, because it is assumed that the owner fulfills a long-term housing need for another Cuban. Arcel Roche, Director of the Legal Division of the National Housing Institute, argues that the new law affecting room and apartment rentals actually expands the rights of homeowners, "People can now rent out their entire unit whereas before they could rent only a maximum of two rooms."

A revolutionary Havana academic, who would not allow her name to appear in print, lamented the high, fixed tax rate. "The person who receives $2,000 per month in rent, pays the same tax quantitatively as the person who receives $100 per month," she said. "In order to register, you pay $100. Each month you pay $200, whether your space is rented or not. Therefore people need to charge at least $300 per month."

For some Cubans, especially supporters of the revolution, the main problem is whether they should rent at all. The academic recounted a story: "A neighbor of mine who rents out a space came by to tell me, ‘I feel deep pain. I feel like a pure revolutionary, but on the radio, they referred to us as practically anti-social. I have never done anything against the revolution.’ My friend was renting out a room to other Cubans who earn pesos and was charging them in pesos. Even though the new law allows for peso rentals to Cubans, he decided to stop renting the room and wait and see what happens." Amidst a housing crisis, the room remains vacant.

Betty, a former accountant who supports herself by selling soap in the countryside, recounts another story of vacant housing. "I was renting my house out to a Cuban for pesos, but when the new law passed, I told him to leave. I just don’t know what the government is going to do next."

The family of Jorge Palmer Sellek rents out a room in its Central Havana home whenever possible. "Most people who rent rooms do so illegally," Jorge confides. "You can’t constantly be paying the monthly fees. You wouldn’t earn anything. You would have to pay more than half of what you earn." His family charges $15 per night to tourists and $40 to $50 per month to students. "What you can make in one day renting in dollars is a thousand times what you make from a peso job," Jorge concludes.

There are those who are relieved by the new rental law. Jorge Miyares of Radio Havana Cuba is one of them. "People were charging prices like $20 to $25 a night for a room," he says. "For a whole apartment, they charged $500 to $600 and more, sometimes $1,000 a month in prime locations and they weren’t paying any taxes." Today, private rentals still bring in comparable amounts, but taxes must be paid.

Roberto de Armas, of the Foreign Ministry’s U.S. Department, insists the government is working hard to find the best ways to address the housing crisis, but he can’t avoid revealing the lack of a true course. "These laws are not necessarily in stone," de Armas says. "If thousands of tourists arrived tomorrow, we would have to allow private rentals freely to have somewhere to put them." Which is exactly what happened last July, when the government asked 15,000 Cuban families to host delegates to the International Youth Festival.

 

The Urban Migration Law

From its inception, the revolution took conscious and effective steps to stem the tide of urban migration, mainly construction of houses, schools, clinics, hospitals, and universities throughout the country. Today, about 2.2 million of Cuba’s nearly 12 million people live in Havana.

Ramon de la Cruz explained why moving to Havana became such an enormous temptation in the Special Period. "Havana had a policy of guaranteed work and guaranteed housing that enabled people to move. People wanted to live better and thought they could do so by going to the capital. As in any country, the lifestyle was easier, it was easier to make money, and the rations were better. Urban migration began to increase, so we passed the urban migration law."

According to Arcel Roche, 50,000 people migrated to Havana in 1996 alone. "These are only the registered immigrants," he adds. "In the first six months of 1997, we know that 92,000 new people tried to legalize their status in Havana, by changing their identification cards or through other means. There weren’t any controls."

The law that regulates migration into Havana passed and went into effect in April 1997. This law requires that people get government permission before moving to Havana. Inspectors must verify that the new lodging in Havana affords adequate sanitary conditions and at least ten square meters of space per person. Violation of the law brings a fine of 300 pesos and the requirement to return immediately to the place of origin. The owner of a housing unit who allows someone to inhabit it without permission is subject to a 500 peso fine, 1,000 pesos in the most densely populated sections of Havana. The law aims to assure, "the recognition and respect of the just requirements of morals, public order, and general welfare."

Roberto de Armas explains, "The urban migration law was passed more to avoid a future problem than to address a present problem. A country of 15 million people, can’t have 6 million of them living in one city." He boils down the government’s approach, "We had people living in subhuman conditions in Havana, without work. We went to these people and said, for example, ‘Señor, you’re from Guantanamo. You have left a house and job in Guantanamo. You need to continue your life in Guantanamo. You can’t live in subhuman conditions here in a house built of trash’."

Some people have legitimate reasons for being in Havana, but can’t get the necessary documentation. Duay Piney Mijares is a young man from the province of Pinar del Rio who came to Havana to get a degree in nursing. While in school, he had papers authorizing him to reside in his aunt’s apartment. Now, he has graduated but is without work. "The urban migration law has affected me greatly," says Duay. "Every time the police stop me I have to try to convince them that I am here in Havana visiting my mother. If they don’t believe me, they fine me twenty pesos. So far, I have been fined three times. This law is contradictory and stupid."

Some believe the law reflects long-standing racial tensions between Habaneros and Cubans from Eastern provinces where African roots are more predominant. Habaneros sometimes refer to Easterners as "criminals." The revolutionary academic explains that many Easterners came to Havana to work in construction. "They were living in abandoned houses in poor condition near Cuatro Caminos in Old Havana," she said. "A lot of stealing was going on and they were accused. Fidel offended them by saying something to the effect of, ‘Old Havana is full of Eastern delinquents’."

Although well aware of racial tensions, the government’s Roche is defensive, "The urban migration law doesn’t represent any xenophobia." Whether anyone has been forced to return to the provinces is difficult to assess. De Armas says, "Since the law was enacted, we have told 3,000 to 5,000 people they will have to leave Havana and return home. About 80 percent of them are still here. No one has been put on a bus and sent back. No one has been repressed."

The academic believes many have been made to leave Havana; "Hundreds of people have been sent back in buses and trucks from the area near the Cuatro Caminos intersection in Central Havana." Yet, she confesses, "Without this law, urban migration would be uncontrollable."

Giraudy doesn’t believe that anyone has been sent back by force. "By force? Who told you that? Wherever you go, there are controls of the population. We need to know who is where. Anyone who has his ID card and is living where he is supposed to has no problems. They say they can impose fines or force someone to return to his province simply to avoid the need to do so. They have a dog that can bite, but it doesn’t bite anyone."

De la Cruz reports, "Some have tried to come here this year and not been approved. There is an appeal procedure in place. I think something like 200 to 400 people have been rejected." He doesn’t believe that anyone has been required to return, but he avoids the issue, "The urban migration law is not retroactive. Those who are already here can stay."

De la Cruz offers what sounds like a weak rationale for the new law. "The urban migration law supports relatives in Havana who don’t want more people in their family to move in," he says. "Before they felt obligated to take them. Now they don’t have to say no. The law says it for them." Once family members are listed in the ration system at a given address and are working or studying nearby, asking them to leave is no simple matter. The government has long been criticized for offering no support when owners wanted to evict housemates or tenants.

Jorge Miyares comments, "The problem was people who had no justification for being in Havana. You can come if you have a reason, for example, getting married or being transferred by your job." Miyares believes the law is having its intended impact, "Fewer people have been coming to Havana since the law passed."

De la Cruz believes that changes affecting Cuban salaries have also made a difference. "Today, farmers who own their own land or who are part of a cooperative or who grow a special product make more than a doctor." Still, the cold reality is that a hotel bartender can made $70 a day in tips while a doctor earns the equivalent of $20 a month.

 

The Journey To Come

Castro proclaimed in a November speech that Cuba still has a life expectancy of 75 years, the lowest infant mortality rate in the third world, and a fully literate population. Yet, Cuba teeters on the edge in terms of providing its population with enough nourishment and clothing, furnishing hospitals with equipment, supplies, and drugs, finding enough energy to fuel the country, and maintaining, much less developing, its infrastructure.

Despite some solutions to the crisis, a host of new problems have appeared, including incomes vastly greater than state salaries, a brain drain of productive, well-educated state workers, urban crowding, career crises for professionals, growing inequalities of wealth and purchasing power, moral conflicts for committed revolutionaries, and increasing pressure from individuals who want to pursue their own best interests. These challenges and others are likely to persist while the government continues to try to "defend the accomplishments of the revolution," while feeling its way through a smorgasbord of socialist and free market policies.

What laws does National Assembly representative de la Cruz anticipate in the future? "No se sabe," he said ("No one knows").

While it is certainly not true that everyone is in favor of Fidel, the president of 39 years keeps going, and so does Cuba.  

Genevieve Howe is a writer and political activist from New England. She has been to Cuba several times, most recently in 1997.