The Americas: Small business just got smaller; Life in Cuba;

The Economist. London: Oct 16, 2004.Vol.373, Iss. 8397;  pg. 60

A new campaign against private enterprise comes as Cubans suffer from worsening water and power shortages

SINCE the collapse of communist Cuba's main benefactor, the Soviet Union, in the early 1990s, and the withdrawal of its subsidies, Fidel Castro's regime has stumbled along in what the government has euphemistically called the "special period". Its main special feature has been the limited opening-up of the economy, most notably to foreign investment in the tourist sector, to bring in vital hard currency. According to the UN Economic Commission for Latin America and the Caribbean, tourism earns Cuba about $3 billion a year.

An even more special innovation, however, was the decision in 1993 to allow Cubans limited freedom to set up small private businesses in 157 spheres of activity. Originally, the scheme was a huge success, leading to a quick expansion in the number of small firms. But the rules have since been tightened, and new ones that came into force at the start of this month mark another important stage in the clampdown. To many, it looks like an ominous sign that Mr Castro is going to try to preserve the original ideology of the revolution, now 45 years old, to the very last.

The most popular forms of private enterprise are casas particulares, houses that rent out rooms to paying guests, and paladares, restaurants run out of houses. Payment is in dollars, and the regulations are always onerous. Paladares, for instance, can have a maximum of 12 seats and may serve only certain kinds of food; even their light bulbs must not exceed a certain wattage. But in a country where many imported products are available only at higher-than-American prices, the extra income is badly needed. According to official figures, 209,000 small businesses had been given licences to operate by 1995.

But there are no illusions that Mr Castro regarded these small businesses as anything other than a necessary evil. So since the end of the 1990s, the regime has tried to make life as hard as possible for them. One sign of this is the swingeing taxes that would-be entrepreneurs have had to pay to the government--monthly, up-front and regardless of income.

Carlos, for instance (not his real name), runs a casa particular in the pretty colonial town of Trinidad, a popular tourist destination on Cuba's south coast. He has to pay a monthly tax of almost $400 on rooms that rent for about $20 a night, and which often go unfilled for weeks during the low season. He makes barely any money on the business, but runs it "because there is nothing else to do" in the town. Like other young people, he dreams of going abroad, in his case to Germany. With these sorts of disincentive, it is little surprise that the number of registered small businesses began falling, down to 154,000 by the end of 2001.

Now, however, there is even less to do for the aspiring entrepreneur. The new regulations certainly have an unintentionally comic side that only po-faced state bureaucracies can manage: you can no longer get a new licence to be a clown, a magician or a masseuse for private gain. But less funnily, no new paladares will be allowed to open, and existing ones will be even more restricted in what they can serve: even potatoes are off. Altogether, some 40 areas of small business are affected by the new rules.

Why has the government decided to tighten the screw on private enterprise now? In the usual absence of any official explanation, there has been plenty of speculation. One dissident argues that Mr Castro knows only too well that "when you are free economically, you are free politically", and so has taken an opportunity to snuff out this particular threat to the regime. Certainly, this would seem to chime with the political crackdown of spring 2003, when scores of dissidents were jailed in the biggest such round-up since the 1960s. "No surrender" would seem to be the regime's rationale.

Others argue that Mr Castro thinks that the reforms of the special period have achieved their aim of stabilising the economy, so he can now dispense with these extra sources of hard currency. But though official figures show modest but steady growth in recent years (see chart on previous page), they seem to fly in the face of on-the-ground economic realities.

Among other woes, such as the sharp decline of the state-run sugar industry, in recent weeks Cuba has been plagued by power cuts lasting for many hours at a time--the worst in ten years, some say. Usually, all economic problems are officially blamed on the "genocidal" American blockade. But so obvious has the energy crisis become that Mr Castro has been on television no fewer than three times admitting to "errors" in the handling of the energy situation. The creaking electrical-supply system is starved of investment to carry out urgently needed repairs, as is the water-supply system. The result is water shortages in some parts of the island.

Remittances from Cubans living abroad still provide a steady source of income to the island, estimated at $900m a year now. But the squeeze on private enterprise means the further erosion of one of the few means that Cubans in Cuba had left for exerting control over their own destinies. Amid the pervading economic gloom that now envelops the country, that small freedom counted for a lot.