Cuba shows beginnings of free enterprise—sort of

Justin Solomon | CNBC

HAVANA, Cuba—In a rare demonstration of openness, the Cuban government invited a group of business journalists to Cuba this week for a show-and-tell about changes it's making to the Cuban economy. Journalists from CNBC, the Economist, and others from Germany, Argentina, and Canada are here to see what the socialist country is trying to show off.

The timing coincided with a new law which took effect July 1—legislation allowing individuals, for the first time since the country turned socialist in 1959, to join together and form businesses in non-agricultural sectors of the economy. Neither the government nor anyone else here uses the word "business." Instead they use the word "cooperative."

'Cooperatives' Hard to Find

Regardless of the name, individuals involved in certain trades are now permitted to form a business, run it without the intervention of the state, and most importantly, to keep the profits for themselves. (They still must pay taxes.) The groups can start from scratch, or as has proven more common in the early going, they can take over previously state-run businesses that the government is willing to hand over. Especially inefficient sectors, such as transportation and construction, are being offered to private hands.

The efforts appear to have gotten off to a slow start. In a week-long program packed with events, visits, news conferences, and a cocktail party, the government did not show visiting reporters any of the new cooperatives—which the minister of employment said now number 197, in the restaurant, construction, industry, and transportation sector.

CNBC tried to find some independently, but a new transportation group told us its start had been delayed. A privately-run wholesale warehouse on the outskirts of town, which was set to open July 1, stood empty. The guard told us it would open in a few weeks. A group of nine air-conditioning repairmen who took over a state-run air conditioning business invited CNBC to their headquarters at a small house in the suburb of Miramar, but then told us they didn't want to speak with us. It is unclear why.

When $2 a Day Is Good Money

Western journalists clamor at the clothing shop of nascent entrepreneur Silvia Lopez Noda in Cuba.
Justin Solomon | CNBC
Western journalists clamor at the clothing shop of nascent entrepreneur Silvia Lopez Noda in Cuba.

What the government did show reporters were the results of an earlier reform begun two years ago in which individuals were allowed to be self-employed in certain categories and even have a small number of employees. One example was that of 57-year-old Silvia Lopez Noda, who opened a new shop in March dedicated to selling the colorful clothing used in ceremonies for the Yoruba religion.

Lopez's storefront is freshly painted (a rarity here) with a modern retail layout. In the back three employees sit at 1950s-era Singer sewing machines making the sequined and satin dresses sold out front. Lopez told us she was selling roughly $100 worth of clothing per day. She pays the seamstress well above the average salary—roughly $2 a day, or between $40 and $60 a month. State workers make only $19 a month.

When all is said and done, after paying taxes, Lopez said she clears $130 to $172 a month.

That a store which uses 1950s-era Singer sewing machines is the shining star of a government-backed tour highlights just how far behind the country is economically speaking and how far it has to go.

Throughout the visit, government leaders who spoke with the press went through great pains to say Cuba is not turning its back on socialism. In a rare appearance, the former minister of planning who is now in charge of the reform process, Marino Murillo Jorge, told journalists the changes were being made because "we are constructing a sustainable socialist society," emphasis on the sustainable.

However, in a statement that would have been inconceivable just a few years ago, Murillo also told reporters during a news conference, "Life has shown us that the government cannot occupy all of the economy."

Extremely Rare Invitation

A seamstress hard at work with a 1950s-era Singer sewing machine.
Justin Solomon | CNBC
A seamstress hard at work with a 1950s-era Singer sewing machine.

Invitations to American journalists by the Cuban government are extremely rare, so the invitation that CNBC received is itself newsworthy. Even the government's decisions on what to show journalists—and what not to show—can prove revealing.

For more than a decade, CNBC has made repeated requests for visas in order to do stories about the Duban economy, and been rejected every time. Only in the case of large events such as the recent visit of the Pope, and Jimmy Carter's visit in 2002, have the visas been granted, and with no access to any officials involved in the economy.

Other journalists on the trip expressed similar frustrations with past attempts to speak with Cuban government officials or to get an inside look at the workings of the state-run economy.