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Cuba libre: Entrepreneurs make most of new freedom

Justin Solomon | CNBC

In just one block of Montes Street in Havana—among the dilapidated sidewalks, cracked windows and rusting window bars—nearly a dozen entrepreneurs are making a go at building their own small businesses.

Nancy Rodriquez and Llaumara Rey, both in their 40s, beamed in front of their offerings—religious statues and amulets that they say are selling like gangbusters. They didn't want to discuss their business's finances, but when asked if they are making more money now than when they worked for the state, they gave very certain, self-assured nods.

Next door, 55-year-old Maria Del Carmen is having a tougher go of it. She just opened shop two months ago, selling plumbing pipes, but she's already thinking of quitting. "It's much harder than I thought it was going to be," she said.

(Read More: Cuban Free Enterprise? Well, Sort of)

Passers-by stopped constantly to inquire about prices for the small pipes and elbows they so desperately need to fix up the millions of run-down homes on the island. Some even bought from Del Carmen's inventory, but apparently not enough of them. After she paid the monthly tax to the state to have the shop, along with her social security taxes, she said it isn't much better than her previous job in a state-run restaurant.

That isn't stopping her neighbor, 26-year-old Luis Enrique, who was setting up shop next door. He feverishly painted a new shop where he plans to sell pizza. Enrique said he is certain he is going to make a lot more money than working for the state, because he's seen his friends do it. Right now, he makes $15 a month working in a state-run warehouse, but he's seen his friends make double that. "I can't wait to open," he said.

To an American, the scene would probably look like a giant flea market, but in Cuba, it's the seed of something perhaps much bigger: a society less dependent on the state. The shops are the result of a new law passed in Cuba just a few years ago allowing individuals to be self-employed for the very first time. Until then, workers were permitted to work only for the state, and all businesses were owned by the government.

In 1959, Fidel Castro ran a successful guerrilla war that took over the country. Originally he said he wasn't a communist, but Castro almost immediately began seizing private business, nationalizing companies and eventually putting every sphere of the economy under government control.

(Read More: Investors Bet On Regime Change in Cuba)

For roughly 50 years, every company sent all of its revenue to the state, and nearly every worker made the same amount of money, regardless of their job.

Now the economy is in shambles, the island a dilapidated backwater of decaying buildings that are still standing only because their original construction was of such high quality.

The Cuban government, now under the control of Fidel's brother, Raul, appears to have finally cried uncle. Marino Murillo Jorge, the former minister of the economy, told reporters this week that "Life has taught us the state cannot occupy all the space in the economy."

(Read More: In Communist Cuba, the Tax Man Cometh)

Skeptics and critics, including dissidents living on the island, say the economic changes are too small to be meaningful and have been carried out for only one reason: for the socialist regime to remain in power. Critics say the charges are more about letting air out of a growing balloon of discontent.

Murillo himself told reporters this week that the biggest and most important companies in the country would always be controlled by the state. Rather than privatizing them, he said, "the government will create the conditions in which those companies can be more efficient." That means letting them keep up to 50 percent of their revenue, to be used for higher salaries or reinvestment.

Murillo is almost dismissive of the small businesses, saying they will play a small part in the future of the Cuban economy.

On Montes Street, toiling amid the smell of fresh paint, those small entrepreneurs are clearly thinking much bigger.

—By CNBC's Michelle Caruso-Cabrera. Follow her on Twitter @MCaruso_Cabrera.

Contact World Economy

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