Early in 2017, Darden Professor Morela Hernandez led a weeklong Darden Worldwide Course of 30 MBA students to Havana, Cuba, in which small student teams engaged with a set of self-employed individuals. These entrepreneurs, known as cuentapropistas, are permitted to operate self-employment enterprises on a government-regulated list of approved entrepreneurship activities. Approved businesses include small restaurants or in-home hotel rooms that serve the rapidly growing tourism market.

Rapid Growth

Compared to Cuba a year ago, the strong growth and budding success of cuentapropistas in the tourism sector was astounding. Cuba’s highly educated workforce is climbing a quick learning curve to effectively create and run small businesses while adjusting to drastically changing market demands. Indeed, these self-employment enterprises are rapidly outpacing analogous state-owned entities in both quality and service. Cuentapropistas are innovating in ways that meet market needs, in marked contrast to state-run businesses.

Social Equality vs. Economic Divide

Despite the recent flourishing of self-employment enterprises, under Raul Castro’s leadership, Cubans have begun to experience a social context that is antithetical to the country’s communist values: wealth disparity. The surge in self-employment opportunities has exacerbated the economic and social divides between Cubans who receive remittances from family living abroad and the widespread poverty that plagues those who don’t. Thus, in recent years, a central challenge facing the Cuban government has been how to reconcile the desire to maintain the country’s deeply held values of social equality with the need to promote growth and development across almost every economic sector.

How to Do It

One potential pathway for the state to remain true to its ideology and yet begin to achieve these other positive objectives would require a change in focus. Instead of keeping strict control over every aspect of tourism services, for example, the state might ease regulation for its entrepreneurial citizens and refocus its energy on providing resources.

This initiative would involve three important changes:

  1. The government could clear hurdles standing in the way of success by facilitating access to resources and efficient markets. Providing cuentapropistas with better access to much needed resources — improved technological infrastructure and accessible wholesale markets, as well as reduced regulatory burdens — the government’s efforts would go further in more efficiently meeting the demand of increased tourist activity.
  2. Rather than imposing direct oversight of businesses, the government could tax profits appropriately to redistribute wealth according to their commitment to social equality.
  3. The government must commit to a massive investment in public infrastructure if the country is to prosper.

With fewer regulations, tax structures that support current social and political ideologies, and significant efforts to restore, rebuild and reshape infrastructure, Cubans will no doubt succeed. What remains to be seen is if the government will have the courage to endure the short-term risks and sacrifices involved with ensuring the long-term welfare of its people.