Economic structure and foreign policy of Cuba

Is Cuba’s emerging entrepreneurial economy

at the crossroads? Richard C. Becherer

College of Business, University of Tennessee at Chattanooga, Chattanooga, Tennessee, USA, and

Marilyn M. Helms School of Business, Dalton State College, Dalton, Georgia, USA

Abstract

Purpose – The Caribbean Island of Cuba, only 90 miles from the US mainland, has remained one of the world’s few examples of a centralized communist economy since Fidel Castro overthrew the government in 1959. The country has declined in recent years, most significantly since the fall of Cuba’s key trading partner and ally, the former Soviet Union. Recently, under the direction of Fidel’s brother, Raúl Castro, the island appears to be slowly loosening some restrictions and promoting new venture creation by allowing more private enterprises and forcing laid-off state employees to consider entrepreneurship. The purpose of this paper is to investigate whether entrepreneurship will be the answer to improving Cuba’s economy.

Design/methodology/approach – Using Graham’s framework of conditions necessary for encouraging entrepreneurship, Cuba is examined with actual observations by the authors after a July 2010 State Department-sanctioned research trip to observe entrepreneurship within the centralized economy.

Findings – Further enhancements to encourage new venture creation in Cuba are identified, along with areas for future research on new venture creation.

Originality/value – The value of this research lies in the fact that there are many paths to create an entrepreneurial economy in an emerging market. Cuba represents a nascent entrepreneurial economy with many barriers to overcome based upon its legacy of communism. The country and market has seldom been examined and there is a dearth of literature on Cuba and other countries trying to move immediately from communism to capitalism when their economy is in crisis.

Keywords Cuba, Marxist economics, Capitalist systems, Emerging economies, Developing countries, Entrepreneurialism, Entrepreneurs, Small to medium-sized enterprises, Economic development

Paper type Research paper

Introduction Cuba’s economy has had many challenges since Fidel Castro’s rise to power in 1959. The US embargo from the 1960s restricted all trade with Cuba and restricted American travel to Cuba, further limiting tourism and Cuba’s access to hard currencies (US Department of State, 1992). The former Soviet Union then assumed responsibilities for keeping the Cuban economy afloat. With the former Soviet Union as a dependable trading partner, Cuba had stability with a consistent partner who provided a number of key goods. The Soviets too had a vested interest in seeing the Cuban Communism model succeed. With the collapse of the former Soviet Union in the early 1990s, the situation changed. The Cuban national income contracted by one-third and food shortages and further rationing was commonplace. This caused Cuba’s trading partners to shift toward

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Received November 2010 Revised November 2010 Accepted January 2011

International Journal of Emerging Markets

Vol. 6 No. 4, 2011 pp. 369-381

q Emerald Group Publishing Limited 1746-8809

DOI 10.1108/17468801111170365

China and Venezuela. The 1996 Helms-Burton Act of the US Congress further reinforced and continued the on-going 1962 US embargo with Cuba.

Current reforms Recently, some changes seem to be taking place within Cuba that may alter the future course of entrepreneurship. Eventually, the government could lay off as many as one million workers from their total population of 5.1 million. Currently, 143,000 Cubans have been authorized to work in the private sector (Rodriguez and Haven, 2010). The goal is to create 450,000 more non-state jobs in 2011 by issuing more licenses for self-employment, expanding the number of categories for permitted work and loosening restrictions for these work categories. Restrictions for obtaining bank credit and doing business with state entities will be lifted (Tamayo, 2010b). Analysts wonder whether this is the first crack in an otherwise frozen Cuban system (Guerrero, 2010).

Given the challenges Cuba faces, what will be the effect of recent reforms to allow more private businesses? Can Cubans, whose basic survival or the mere chance to enjoy a small luxury, depended on finding a clever, illegal way around the many government restrictions move from having a guaranteed government job to starting their own businesses? By utilizing an analytical framework developed to assess the entrepreneurial pre-conditions of an economy, these questions are examined in this paper.

Methodology Assessing entrepreneurial opportunity in Cuba Paul Graham, founder of Viaweb (a web-based application that allows users to build and host online stores directly from their own web browser with little effort or technical expertise) which was earlier acquired by Yahoo and a well-known commentator on entrepreneurship, has outlined the parameters of entrepreneurial clusters and necessary and sufficient pre-conditions for a productive entrepreneurial environment. From his analysis, Graham (2006) developed a framework of key points, entitled “Why startups condense in the US” The paper uses Graham’s (2006) framework of entrepreneurial conditions to analyze the current Cuban situation based upon the literature and first-hand experiential social research conducted during a July 2010 study trip to Cuba by the authors, both professors of entrepreneurship.

1. An entrepreneurial economy is open to immigration. An open immigration policy means the best and brightest from many countries, with new ideas and energy, are allowed to immigrate and put their ideas to work. Areas of entrepreneurial excellence like Silicon Valley in the USA are examples of thriving entrepreneurship and innovation and many of these new startups were founded by entrepreneurs who had been in the USA for ten years or less (Graham, 2006).

Nearly 200,000 people left the country in 1959 at the start of Fidel Castro’s revolution and then shortly thereafter, 250,000 more Cubans left their home from 1965 to 1971 to pursue opportunities in other countries. The Cubans who emigrated were largely middle- and upper-class individuals who owned businesses and property and who had the most to lose under communism. This exodus drained Cuba of skilled professional people with entrepreneurial mindsets. Many of these Cuban-Americans now operate successful businesses in the thriving Miami, Florida economy in the USA (De Salas del Valle, 2009).

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The Cubans who were born and raised in the communist country after 1959, however, have never experienced personal survival in an economy where a job is not provided. Cuba suffers both from losing several generations of entrepreneurs after the revolution and also from having a populace socialized not to worry about self-initiative. This communistic mindset has been an issue in establishing free market economies in other countries including Russia (Ray and Espiova, 2008).

Movement to self-sufficiency and personal initiative is scary to individuals who have no resources to begin self-employment. To stimulate entrepreneurial development, Cubans who left the country may have to return and assume new venture leadership roles. It is a natural evolution that those with an entrepreneurial mindset gravitate to areas of opportunity. Cuba must also begin to allow more open immigration to welcome all individuals who are seeking better opportunities. If Cuba is accommodating, these entrepreneurially oriented individuals will be an important catalyst to stimulate and re-grow the economy. They will also be responsible for training and mentoring the current generations of Cubans into the ways and techniques of capitalism, free enterprise, entrepreneurship and general business practices.

2. There is an inherent “speed limit” for entrepreneurial development. A country ready for entrepreneurship, according to Graham (2006), is well developed with an adequate power grid, good roads, utilities, infrastructure, transportation options and communication facilities. The infrastructure is key to increasing the velocity of the economy and creating an environment which can easily spawn new ventures. An inadequate infrastructure will limit the progress of entrepreneurs with ideas. Companies and industries dealing with a more primitive infrastructure will be slow to develop because the precursors for natural development are limited or nonexistent.

As observed during the summer of 2010, Cuba has many outward signs of a limited infrastructure for entrepreneurial development including abandoned facilities and inadequate power, water and sewer systems. Buildings and homes are in extreme disrepair due to the constant barrage of storms and hurricanes that have hit the island over the years as well as the lack of building supplies for repair. The power grid is old and inadequate, with street lights not turned on, the airport dimly lit and extension cords strung as needed to provide power. Many buildings lack doors and windows and the sidewalks and streets are cracked and broken. Even the highest rated hotels that are outwardly and cosmetically upgraded to US and European standards require trucks to pump out their daily sewage. Cuba generally uses 110-volt electric current, but lacks infrastructure support, so most tourist hotels managed by the Spanish have been rewired for the two-prong European 220 voltage and plugs. Communication infrastructure, such as internet and land line phones must also be accessible for new ventures to flourish.

With no real interstate roads constructed across the country, even the movement of goods from manufacturing to distribution centers and ports is limited. The lack of good roads for efficient distribution of crops is cited as a key failing of the country’s food production. Often, Cubans have an inadequate supply of food and yet crops rot in the fields due to lack of roads, working trucks for transport, limited storage facilities and scarce gas and diesel fuel. Ports, railroads and air transportation must also be repaired and expanded to be adequate for higher volumes of commerce. Given the infrastructure that currently exists and the issues faced by current visitors, the current “speed limit” for entrepreneurship development can be described as “glacial” when compared to more developed economies.

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3. Being able to freely exchange ideas stimulates creativity and innovation. A visitor to Cuba quickly realizes the country has little or no communication with the outside world. For Cuban citizens, there is no news other than the Granma newspaper published by the communist government and the only books available are political ones touting Castro’s successes in the revolution of 1959. When free thought is forbidden and creativity is discouraged to equalize everyone’s position in the societal hierarchy, the result is a repression of the basic reason that entrepreneurs exist, independent action. Entrepreneurs are moved by their freedom to test new ideas, new technologies and new processes that relate to opportunities they have identified. A culture without the free exchange of ideas will result in an environment unsuitable for entrepreneurship (Graham, 2006).

Since 1959, Cuba has allowed no outside newspapers or news sources. The country’s educational system has indoctrinated citizens with the tenets of communism since grade school. Propaganda is part of the regular communication regimen, with access to outside ideas (TV, internet, or international newspapers) strictly forbidden except for some limited options available for tourists in the limited number of tourist hotels. Open communication is the seed of innovation and creativity in an entrepreneurial culture. Marketing freedom is also necessary for businesses to thrive and grow and for nascent entrepreneurs to observe as they plan new, innovative products and services to bring to the market. On every corner and along the roadways, all the billboards are for socialist signs and slogans. There are no advertisements for products and services.

Historically, one reason for the large black market economy is that many Cubans were refused licenses by the state or they refused to pay the high taxes required by the government to start a small, private business. The newly reformed tax structure and proposed privatization system will more rigorously identify and eliminate unauthorized or black market businesses. If more licenses are issued for private businesses and entrepreneurship becomes more prevalent there may be improvements in the ability to exchange ideas, allowing for more creativity and innovation. New reforms, however, also include an income and sales tax and a 25 percent employment tax for the entrepreneur and each employee (Tamayo, 2010b). But by allowing more authorized businesses to operate legally, an entrepreneurial culture could emerge. A pre-condition, however, will be open communication so new ideas can emerge and thrive.

4. Good universities provide good entrepreneurship partners. The highest levels of forward critical thinking exist in universities, which attract the brightest faculty and students to engage in thought and become a resource for the development of ideas and business practices via their institutes and various research centers. Research at the best universities sets the stage for other colleges and schools to follow and emulate (Graham, 2006). High-quality universities are one key to entrepreneurship. The prerequisite for a high-quality university is to allow professors and curricula to evolve with academic freedom.

While the University of Havana has skilled professors and qualified students, the curriculum is largely a combination of communism and liberal arts. This narrow perspective on what can be taught and studied must be expanded to become a complete, diversified education. While tourism studies have recently been added to the university curriculum, true business administration and entrepreneurship programs must be developed.

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While the literacy rate is very high in Cuba (quoted as over 90 percent) and education is free, even at the university level, true literacy goes beyond being able to read and write. With limitations and restrictions on what they can read and write, Cubans are not truly educated. Conversations with Cubans during July 2010 suggested that they did not know about the existence of the Cayman Islands or Jamaica both located less than 100 miles from Cuba. Clearly, the Cuban Government has intentionally not taught citizens about nearby locations fearing their exodus from the country (Perez and Robles, 2010). New opportunities will not emerge until Cubans understand other countries and cultures, how the cultures and economies operate and how entrepreneurs thrive by meeting market and customer needs. This is the role of the educational systems and universities in a free market economy.

5. Entrepreneurs need to be able to hire and fire workers. Under Fidel Castro, a limited number of private businesses were allowed to exist as long as they only hired family members. Since Raúl’s reforms (The New York Times, 2010), businesses have been allowed to hire outside workers (Tamayo, 2010b). This could be a fundamental turning point in allowing entrepreneurship to grow. Raúl Castro insisted these reforms are consistent with socialist ideals (Tamayo, 2010c) and that Cubans must stop expecting so much of the government (Frank, 2010).

Before the 2010 reforms, the Cuban Government controlled over 90 percent of the economy. Under the new reforms, individuals may rent or borrow state-owned facilities and create cooperatives that could support individuals over the next few years (Darlington, 2010). The 26-page document from Cuban Government outlining the changes indicated a merit pay system for the best workers, moving from the uniform payment system (Haven and Rodriguez, 2010). But will workers know or have the means to be competitive since the only culture they have known included a small but steady paycheck?

While new enterprises will have taxes collected on wages, sales, social security payments for the retired and an employment tax (Rodriguez and Haven, 2010), at least under the reforms, entrepreneurs will have the possibility of growing their businesses and accumulating wealth. To maximize the opportunity, however, entrepreneurs will need the freedom to release certain workers and have flexible hiring policies to adjust to their business cycles.

A move to a more free market economy will be a difficult transition for most employees, but to attract the best workers, a merit-based, flexible employment policy is paramount. The ability to eliminate unproductive employees who are not doing a good job is important. Today’s Cuban workforce has been described by Cuban leaders as unproductive (Goldberg, 2010). Even the Castro Government agrees many of the new ventures will not be successful because owner-operators lack appropriate education, experience, skill and initiative. But most observers assert that to improve the economy, Cuba cannot continue to allow bad work habits, distorted worker conduct and unproductive government jobs to exist (Rodriguez and Haven, 2010).

6. Entrepreneurship works best in a dynamic labor market. In an entrepreneurial economy, work is less identified with employment. Individuals in less-developed economies, however, tend to totally identify with their job and may work an entire career in only one occupation. In more entrepreneurial economies, employees feel free to move among occupations, industries and companies to seek better opportunities, more pay, or more interesting work (Graham, 2006).

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With Cuba’s official unemployment reported below 10 percent it would seem the labor market is dynamic until the numbers and situation are more carefully examined. In 2009, the island’s unemployment was listed as 1.6 percent which is significantly below the regional Caribbean average of 7.4 percent (EIU ViewsWire, 2010a). But in their stated unemployment numbers, Cuba does not count anyone not officially registered for work nor do they count people on payrolls that have no work to perform. To maintain this “official” low unemployment rate, Cuba has inflated state payrolls and depressed productivity in the country (EIU ViewsWire, 2010b).

In Cuba, employees have been traditionally assigned to jobs via screening systems in place and imposed by the government. The government currently offers two or three job options after students are assessed in their secondary education program, but once a path is chosen it is difficult for Cubans to change vocations. Cuba has historically authorized only 124 private enterprise occupations such as toy repair or piñata maker. The reformed system of 2010 authorizes additional categories such as raising rabbits and making bricks (Stanglin, 2010). To inspire a free market economy, there should be no categories to fit into. Some of the best opportunities may represent new venture employment options never imagined and not previously “categorized” by the government.

The September 2010 plans to lay off over 500,000 public sector workers over a six-month period and allow more private sector jobs (Darlington, 2010) will make the labor market more dynamic. While he previously announced in August 2010 the layoffs would be phased in over five years, Raúl Castro increased the pace, indicating job cuts will be completed by April 2011 (EIU ViewsWire, 2010c). This is a good sign for faster reform.

The job categorization system utilized by the Cuban Government generally restricts private enterprise to what is best termed “lifestyle” jobs. These businesses will provide entrepreneurs with a means of making a living, but they do not create companies with employees or significant economic value (Timmons and Spinelli, 2009). New ventures which have a team of entrepreneurs, startup capital and a business plan designed to create a new economic entity that can exist and be productive on its own must be the focus. These companies are the foundation of a free market economy.

While nearly everyone is technically employed under what has been described as “extreme socialism” (i.e., Fidel Castro’s softer term for communism) there is very little freedom of expression or personal liberty and only the most limited possibility for personal initiative in a few classes of private employment. Workers in Cuba are concerned and worried about their future but are reported to be hopeful that in the slowly emerging private-sector system their wages can exceed the current equivalent of US$20 per month (Mahalo.com, 2010).

7. Create an entrepreneur-friendly environment. Entrepreneurial-friendly environments make it easy and straightforward to obtain a business license, a business location and comply with regulations. In less friendly entrepreneurial environments, the process of obtaining the right to start a business is complicated and lengthy, requires extensive regulation and extremely high fees (Graham, 2006).

As part of a new plan to privatize more of the economy and expand tourism, the Cuban Government’s Decree Law 273 of July 29, 2010 allows outside foreign investors to lease land for 99 years instead of the original 50 years. Cuba also announced foreign investors were planning four golf resorts to include a marina, housing and boat slips (Tamayo, 2010a). Golf course developers include Native Americans from Canada,

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as well as British and Spanish investors. It should be noted a similar golf development in 1995 was unsuccessful because it was plagued with corruption and did not include housing for Cuban workers (Tamayo, 2010a). But tourism is seen as the fastest way to tackle the economic crisis (Castillo and Gaspar, 2002; Wilkinson, 2008).

Historically, Cuba has closely regulated all aspects of their economy and they have traditionally had high fees and taxes associated with the limited private enterprise that existed. This type of central and paternalistic behavior will make it difficult to create an entrepreneurial economy. Cuba needs entrepreneurship-friendly processes for startup and easy to understand and follow rules for operating a business. Such an environment will encourage individuals to enter the private sector. Other issues to address include taxation and employee regulations, permits, construction and manufacturing regulations. The 2010 monthly quota (fees to the Cuban Government for conducting private enterprise) averaged US$15. However, the fee structure is scheduled to rise under the new program.

Cubans have had a culture of being resourceful in leveraging their resources, making do with less and being creative by finding solutions to the problems of daily living. Ritter (1998) pointed to the existence of entrepreneurship in Cuba within a market-oriented setting even when such activity was effectively prohibited. Instead of converting Cuba into a socialistic country, the revolution has promoted widespread values, attitudes and behaviors of entrepreneurship as Cubans have had to barter, network and hustle to improvise solutions to their problems of sustenance and survival. The black market, Ritter (1998) asserts, has helped to create microenterprises. After the collapse of the former Soviet Union, the expansion and diversification of such micro-entrepreneurial activity in Cuba has been impressive. He believes the entrepreneurial potential exists in significant volume in Cuba but just needs “unlocking” with proper policy reorientations and initiatives to encourage new venture creation.

With Raúl Castro’s proposed reforms, private restaurants will be allowed up to 20 seats for customers (up from 12 seats) but they will be competing with state-run restaurants in the tourist districts that have no such seating limits (The Wall Street Journal, 2010). To promote an entrepreneurial economy, it is critical that Cuba, like most governments, does not create public entities that aggressively compete with private enterprises.

One of the first examples of Raúl’s free-market experiment was allowing private Cuban barber shops and beauty salons. After these formerly state-run entities privatized, by obtaining a license and paying a 15 percent tax to the state, they were free to set their own prices (The Los Angeles Times, 2010). One concern by some Cuban observers is that the free-market experiment will only lead to move government corruption (Haven and Rodriguez, 2010) as the monies collected from these newly privatized ventures are likely to remain with the government and will not be spent for needed infrastructure improvements in the country to benefit the citizens.

8. Larger domestic markets create more prospective customers for new ventures. Unlike the USA with over 300 million people, Cuba’s population of 12 million people represents a relatively small domestic market for trade and commerce. For entrepreneurship to thrive, entrepreneurs will need to serve larger markets, obtain supplies internationally and sell exports on a world market. This will require Cuba to create more trade relationships, including a relationship with the USA. The proposed

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reforms may create an environment to again open up a dialogue with the USA to lift or modify the on-going embargo.

Clearly, there are currently extreme shortages in goods and services. Cubans were observed stopping tourists on the street begging for products they desperately needed like soap and ibuprofen. Because retail stores lacked any quantity or assortment of goods, Cubans begged for products rather than money. A typical retail store had only a few tourist t-shirts with the likeness of revolutionary leader Che’ Guevara, a few towels, several small infant blankets, a few pairs of socks and underwear and some deodorant. Toilet seats were nonexistent except for the best hotels. Cubans could be seen standing in line when there was word of new products or inventory arriving.

Cuba is the largest country in the Caribbean, yet other Caribbean countries have more developed and successful economies. Cuba could join forces with CARICOM, the Caribbean common market and obtain the benefits of trading in a common market arena (Caribbean Community Secretariat, 2010). Cuba’s rich resources of nickel, sugar cane and tourism options make them a viable trading partner with many other countries.

9. Entrepreneurs need some source of funding. Startup capital funding is required to support new business ideas. Most entrepreneurial economies have well-developed banks and the presence of angel investors, small business advocate organizations and business incubators, loans and grants for women and minority businesses and venture capital organizations. Venture funding and banking is essential for sustaining an entrepreneurial economy. Similarly, rules and procedures for contracts, investments in business structures, shareholders, safeguards and legal ways to invest are needed. Rules and procedures must also be designed and enforced so investors have confidence to make needed investments so businesses can perform and prosper.

Since most Cubans with assets left the country in the 1960s and are now living abroad, it will be necessary to attract investment from other parts of the world. Already Spain, The Netherlands and Venezuela have strong trade relationships. These countries might be excellent sources of foreign capital. Cuban expatriates in the USA have a great deal of hostility toward the current Cuban regime, but they may be attracted to return if the USA lifts restrictions and a deal can be made regarding control of the properties they previously owned.

In Cuba the laws, rules and procedures do not give today’s investor confidence. There are no sources of capital within Cuba and no one has experience with investments or in even screening potential business ideas. Also needed are all the structures to attract external capital, to become a public company and eventually establish a Cuban stock exchange for initial public offerings (IPOs). Also a single convertible currency will be required rather than the regressive dual currency system employed today with Cuban citizens paid in the lower value Cuban pesos and more valuable convertible Cuban notes used by tourists. Ultimately, issues of repatriation also must be resolved with assurances profits can be reinvested or taken out of the country.

Cuban entrepreneurial economy – macro perspective When Cuba is compared to Asian, European or Latin American countries that transitioned to a market economy, it is clear there is a precise process that works best to change the economy and avoid mass unemployment, severe inflation, or recession. According to Castañeda (2005), the three synergic components of this transition are:

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(1) institutional building and strengthening;

(2) macro economic stabilization and liberalization; and

(3) microeconomic restructuring.

It would appear the Cuban Government does not plan to follow this sequence in their reform proposals.

The legal and institutional building and strengthening is designed to create legal entities and rules and procedures add confidence regarding economic stability to prospective entrepreneurs and investors. Very little has been done since the revolution other than lengthening land leases to appease foreign investors. Property ownership remains an important aspect of entrepreneurial activity. To the extent these issues still remain as ideological hurdles in Cuba, real entrepreneurship will be limited.

The process of macroeconomic stabilization and liberalization refer to the policies surrounding currency, tariffs and taxation that can provide an environment of consistent and logical rules and regulations. To the extent the Cuban Government is inclined to continue to operate two parallel currencies and utilize tariffs and taxes to simply prop up the other shortcomings in their economy, foreign investors will be very wary.

The only area the Cuban Government has tried to improve the entrepreneurial environment is in the microeconomic restructuring aspect of the economy. By encouraging and expanding private enterprise activity, the government demonstrates a willingness to explore additional options for work and employment. But the sudden release of 500,000 workers will create such a chaotic labor environment that only the strongest individuals with initiative will prosper. The microeconomic aspect of the economy synergistically depends on the other critical dimensions to fully function productively. It appears the Cuban Government is not likely to reform all aspects of their system, a fact that may hamper early initiatives.

Discussion While some observers may feel the announced reforms are attempts to move Cuba to more of a market economy model similar to China, there are some distinct differences. The Cuban move toward privatization seems to be motivated by a recognition Cuba is out of options in turning around a struggling centralized economy. The subsidies formerly provided by the Soviet Union and now to a lesser extent by Venezuela are the only reason the model has functioned at all. To remove 500,000 workers from the government payroll seems a sign the government is willing to consider other options.

In China, the government made the move to a more market economy via careful central planning, not a sudden change in government employment options of a large segment of the workforce. In fact, the process used in China was so successful it outpaced the rate of reform in similarly situated Eastern European countries transitioning from the communist model (Qian and Wu, 2000). By maintaining a stable economic system with employment opportunities, China has also made political gains. After several decades of reform, China may finally be able to reach a level of 60 percent of America’s GDP (Sumner, 2010). China has evolved into what Ian Bremmer has labeled a form of “state capitalism” (Asia Times Online, 2010) which might be a worthy goal for Cuba. China knew it needed more economic growth as a means of achieving political stability.

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It would appear the current level of political stability in Cuba, however, is not yet at a crisis level, but after massive layoffs, political stability may soon be in question.

Changing the culture for new venture creation in Cuba will require a change in the mindset by individuals as well as require access to low-cost capital, tax incentives or exceptions and the availability of management advice, business incubators and other conditions to foster business creation. Social and environmental issues too must change. State-trained Cuban economist, Oscar Espinosa Chepe’, applauded the new reforms but agreed Cuban authorities will need a complete ideological reform to allow private-property reform and other initiatives to work successfully (Weissert, 2010). Layoffs of government employees will certainly create short-term unemployment but may lead to higher long-term wages for those in the private sector (De Córdoba and Casey, 2010).

Currently, 591,000 workers are reported to be employed in the private sector in Cuba, either self-employed or working for a foreign company operating in Cuba, like most of the Spanish-run hotels. There are 143,000 of the 591,000 who are self-employed, in the limited private enterprise previously allowed under Fidel Castro. The major obstacles limiting entrepreneurship are the excessive taxes, the lack of access to credit and foreign exchange, the ban on advertising, limits on hiring and excessive government regulation and red-tape (De Córdoba and Casey, 2010). Cuba has 124 approved activities for those who want to be self-employed such as toy repair, music teacher, carpenter, or piñata sales. While the categories will likely be expanded, these endeavors would generally be classified as “salary substitute” or “lifestyle” companies that are unlikely to create inherent economic value (Timmons and Spinelli, 2009). One additional reason cited for slow economic growth in the past is that foreign investment has historically been restricted to joint ventures with the government (De Córdoba and Casey, 2010). Foreign capital has only been allowed in this one narrow segment of the overall economy and typically this has been in the management of tourist hotels by the Spanish.

There has been a conflict between those who want economic freedom and the government’s desire to control. Creating a system with increased taxes and other financial obstructions will not allow the private enterprise to work. Already the privatized barbers who are now renting their former state-run barber and beauty shops are complaining about their high taxes. According to Carmelo Mesa Lago, University of Pittsburgh professor and noted expert on the Cuban economy, the government should delay collecting taxes until new private businesses are established and profitable (Tamayo, 2010c).

The problems that many forecast for the new Cuban economic system are excessive government-imposed control, increased taxes and fees which will hinder economic activity. A concern is that the government may want to be involved in the private management of the enterprise with such activities as pricing, determining where cooperatives could sell their products and requiring that only the government can provide the agreed-upon supplies like fertilizer and transportation (Tamayo, 2010c).

Areas for future research The future of Cuban reform is uncertain. Some believe the economy will result in a hybrid model. Dropping the US trade embargo is a necessary step. The Cuban-Americans in Miami, the original 1.5 million entrepreneurs who left the island in the early 1960s must also work with the 11 million Cuban population (The Economist, 2007) of young, mainly black or mulatto individuals remaining in Cuba (The Economist, 2008).

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It is not clear if the Cuban Communism, which has differed from Eastern Europe, will follow a different pattern to market reform (Tamayo, 2010d). Research should compare the changes in China, Russia and other countries to draw parallels as well as highlight differences. Still other research should consider possibilities for foreign investors in the country beyond tourism and could include deepwater oilfields and offshore drilling.

Case studies of privatization of businesses as well as studies of emerging businesses and their paths to growth are needed. Typically, younger people more quickly adjust to such massive economic and social change. Studies of differences in employment and new venture creation among older Cubans versus younger would be an interesting study. Studies of life cycles of business development would also be of interest to other emerging and developing markets.

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About the authors Richard C. Becherer holds the Clarence E. Harris Chair of Excellence in Business and Entrepreneurship at the University of Tennessee at Chattanooga. He has had extensive experience both as an academic Marketing Professor and as an entrepreneur. He co-founded one of the first for-profit health maintenance organizations in the USA and has also been involved in several other business startups, including a marine business and a plastic injection molding business. Dr Becherer received his doctorate from the University of Kentucky and primarily teaches entrepreneurship and marketing courses. He has published numerous journals articles in titles such as Entrepreneurship Theory & Practice, Journal of Small Business Management, and Journal of Marketing and Decision Sciences. He was the 1993 winner of the Coleman Foundation Award for the best research paper at the 1992 University of Illinois-Chicago American Marketing Association Research Symposium on Marketing and Entrepreneurship. In 1998, Dr Becherer received the Edwin M. Appel Prize presented each year at the Price/Babson College Fellows Program.

Marilyn M. Helms is the Sesquicentennial Endowed Chair and Professor of Management at Dalton State College. Prior to joining DSC in 2000, Helms was the UC Foundation and George Lester Nation Centennial Professor of Management at the University of Tennessee-Chattanooga and Directed the Institute for Women as Entrepreneurs. She holds a DBA in Management from the University of Memphis. She teaches Entrepreneurship and Strategic Management. Dr Helms has published articles on manufacturing strategy and entrepreneurship in Journal of Developmental Entrepreneurship, Business Journal for Entrepreneurs, Competitiveness Review, Academy of Entrepreneurship Journal and Journal of Business Strategies. Dr Helms was awarded a Fulbright for teaching and research at the University of Coimbra in Portugal. She writes a column on business trends for the Dalton Daily Citizen and shares in the operation of a family pest control business. Marilyn M. Helms is the corresponding author and can be contacted at: [email protected]

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