Cuba loosens grip on retail services

The measure marks the first time state-run, retail-level establishments have been handed over to employees since they were nationalized in 1968. Barbers and hairdressers in telephone interviews from a number of cities during the weekend said they would now rent the space where they work and pay taxes instead of receiving a monthly wage.

Those employees who do not wish to rent are being offered other jobs or retirement. Cuba and North Korea are the world's only remaining Soviet-style command economies in which the state controls more than 90% of economic activity. Other communist countries such as China and Vietnam have long since liberalized retail trade, services and small business.

The Cuba measure, which is subject to adjustment and local conditions, sets a monthly fee for each person based on 15% of the average revenue generated by haircutting and styling in each area. They will be able to charge whatever the market will bear and expect to make good money for Cuba, where the average monthly wage is 420 pesos, or about $16.

Daisy, a hairdresser in easternmost Guantanamo province, said under the old system the government took in 4,920 pesos per month per hairdresser. Now she will pay the government 738 pesos per month and keep any earnings above that. In Santiago de Cuba the monthly fee is 1,008 pesos and 1,292 in the city of Holguin. "We have to pay water, electricity and for supplies but it seems like a good idea," Daisy said. She said that while the plan did not turn the shops into cooperatives, employees would have to join forces to decorate and maintain the establishments.

"You will have to work very hard to earn a good living but I like the idea," said Yordanka, 25, a hairstylist in the eastern city of Holguin. Barbers and manicurists will pay less per month. For example, in Guantanamo barbers will give the government 604 pesos and manicurists will pay 280 pesos.

The government has not announced the new policy, which began this month and now applies to beauty parlors and barber shops with three or fewer seats, nor has the state-run media mentioned it.

Mr. Castro has fostered discussion in the media and through grassroots meetings on what ails the economy since taking over for his brother, Fidel Castro, more than two years ago. The retail sector has come under withering criticism for poor service and rampant theft, and officials have repeatedly urged patience as they experiment with ways to bring improvement, without jumping into full-scale capitalism.

Beauty shops have operated in a kind of a philosophical void that served no one very well, said Mabel, a Havana hairdresser.

"In practice they were neither state nor private and simply didn't function," she said.

Cuba expert Phil Peters at the Virginia-based Lexington Institute said the new measure was a small step with potentially big consequences if the model is applied to the broader retail sector.

"If carried out fully, it would convert small state enterprises into leasing arrangements and urban co-operatives," he said. "Since the co-operative model and leasing are already being extended in agriculture, there would seem to be no ideological barrier to employing them in the cities."

The Cuban government took over all small businesses and retail activity in 1968. In 1993 the government legalized self-employment in a number of retail activities - from home-based snack shops and restaurants to beauticians, barbers and clowns - but then gradually reduced the number of licences available.

The number of self-employed peaked at more than 210,000 in 1996, the government says, but had declined to around 100,000 by 2009.

Countless individuals engage in illegal self-employment, including haircutting, styling and manicures.

© 2010 Thomson Reuters