Cuba to expand use of employee-run cooperatives

A woman walks past graffiti on a wall that reads ''Fidel'', which refers to former Cuban leader Fidel Castro, in Havana September 6, 2010.

HAVANA (Reuters) - Cuba will soon turn some small-scale manufacturing and retail services into cooperatives as the state retreats from minor businesses in an effort to boost the island's troubled economy, government and Communist Party sources said.

The moves are the latest reforms by President Raul Castro, who wants to reduce bureaucracy and raise productivity by easing the government's role without sacrificing the socialist system installed after Cuba's 1959 revolution.

"Cooperatives are not something on the horizon, they are something already approved by the Havana Provincial Assembly in hopes of recovering local production and improving morale and competitiveness," said one government insider who, like others, asked that his name not be used.

"There are already local workshops that have received approval to move to a cooperative form of production and administration," he said, listing furniture-making and garment workshops as good candidates.

The plan includes bringing illegal private businesses already operating in Havana out of the shadows and taxing them. Cuba nationalized all retail business and small manufacturing in 1968, all the way down to shoeshine shops.

Earlier this year, Castro leased back small barber shops and beauty salons to individual employees and is doing the same with taxis. Farm cooperatives have existed in Cuba since the late 1970s.

Castro also has said the government must cut bloated state payrolls by around 1 million workers over the next five years.

Seeking to create jobs, he announced last month that more family-based private business would be allowed and, for the first time, private contracting of labor.

Castro has brought local and provincial governments into the task of economic development. They were ordered earlier this year to come up with projects to stimulate economic activity and create new jobs under a program called the Municipal Initiative for Local Development.

According to a document shown to Reuters, the premise of the initiative is that "the scarcity of ... local development plans has created a complicated and unfavorable situation in a number of municipalities."

"Centralization has left big empty spaces at the local level that must be resolved -- for example food production, services, transport and trade, among others," it said.

NO SHIFT TO CAPITALISM

The provincial governments are now in the process of approving proposals that can include cooperatives and other forms of administration.

"Raul said to study what to do at the local level. It doesn't have to be the same in Havana as here in Camaguey," a Communist Party cadre in the province said by telephone.

Castro has fostered debate on how best to handle the retail sector since taking over from his brother Fidel Castro two years ago but he has ruled out a shift to capitalism.

There has been no mention, for example, of entrepreneurs being able to reinvest profits to expand their businesses.

The state will still own the cooperatives' premises, as it does most things in Cuba, but the workers will run them, pay operating costs and taxes and keep the profits.

"Thirty of our restaurants, some with a good image and others less so, have already been selected to become cooperatives and their presidents named. They should begin the process soon," a mid-level functionary in Havana's food service industry said.

He said discussions had gone on for a year.

"What is holding things up is figuring out how they will purchase supplies and details such as minimum salaries and if the administrators' earnings should be capped," he said.

An economist involved in preparing rules for non-agricultural cooperatives said it was still under debate how much the cooperatives would be allowed to function through market mechanisms.

"The state should let them operate through supply and demand, not begin to cap prices and tell them where and what they can and cannot sell. In other words exercise only indirect control, for example through a tax on sales," he said.

(Editing by Jeff Franks and John O'Callaghan)