BY TIM JOHNSON

  WASHINGTON - A common view among Cuba-watchers is that the thousands of micro-enterprises that Fidel Castro has allowed to operate on the
  island in the past decade comprise "islands of capitalism in a sea of socialism.''

  They include small bed-and-breakfasts, 12-seat restaurants and other tiny businesses.

  But scholars at a conference on Cuba's economy said Wednesday that the Castro regime has never allowed the private sector to flourish. It has choked
  businesses with red tape, forced them into illegal survival strategies and condemned them to a provisional and tenuous existence.

  ''These enterprises face a very insecure future,'' said Ted A. Henken, a professor at Tulane University who wrote a doctoral thesis on Cuba's experiments
  with self-employment.

  Fighting off economic collapse after the fall of the Berlin Wall, the Castro regime in mid-1993 permitted some Cubans to create their own jobs. It said
  Cubans could seek licenses to work in any of 117 occupations, including bicycle taxi operators, street vendors, artisans and other categories. With time,
  the list of occupations grew to about 160 categories of self-employment.

  By 1996, some 209,000 Cubans were self-employed. The number has since shrunken to about 150,000 people, a sign of the mistrust the Castro
  government feels toward the sector, the scholars said.

  Still, the micro-businesses absorb the unemployed. For every licensed self-employed worker, there may be as many as three other people who are
  unlicensed, creating a ripple employment effect, the experts said.

  ''Even though it's just 2 percent of the labor force, it's an important factor because of the multiplier'' effect in the economy, said Joseph L. Scarpaci,
  professor of urban planning at Virginia Tech and a frequent visitor to Havana.

  The experts said they think the Castro government will continue to tolerate the micro-businesses -- even as they deeply restrict them.

  ''I think they are here to stay,'' said Philip Peters, vice president of the Lexington Institute, an Arlington, Va., think tank that organized the conference.
  'Government officials say, `Look, they provide an array of services that the government can't provide.' ''

  Henken, focusing on the small private restaurants -- or paladares -- that popped up around the island, said the government has imposed a thicket of legal
  restrictions on them.

  The facilities can't have more than 12 seats and all workers must be either family members or live in the same household, he said. They cannot have
  television sets, live music or bar areas.

  The number of private paladares has fallen from a high of 1,562 in 1996 to as few as 200 today, partly because of legal restrictions and high taxes.

  Red tape means that owners of the micro-restaurants have to adopt often-illegal survival strategies, resorting to hustlers to bring in tourists because
  advertising is banned, and offering hidden rooms, illegal foods and other inventive strategies, Henken said.

  ''It's still very mysterious and complex how [the self-employed businesses] function and where the inputs come from,'' he said.

  Ironically, the entrepreneurs are not necessarily keen on a dramatic further opening of the economy, in part because their success is based on whom
  they know and how they can get by in a restrictive socialist system, he added.

  But many of the self-employed are risk-takers, and while their links to official sources for supplies are deep, they still live partially outside the
  government's control.

  ''The real heroes on the island are the self-employed,'' Scarpaci said. "They are the future. I see people looking up to them.''

  Thousands of bed-and-breakfasts now exist on the island, 40 percent of them licensed to cater to foreign tourists, Henken said.

  The Castro regime has slowly de-emphasized the nation's reliance on sugar production in favor of tourism, bringing 1.7 million foreign tourists to the
  island last year to occupy some of the 36,000 hotel rooms now on the island, Peters said.

  As more Cubans look for jobs in self-employment or related to tourism, ''you've got a demonstration effect that market mechanics work,'' he said.
  ''Everybody knows'' that capitalist techniques ``pulled Cuba out of the ditch.''

  Scarpaci said, though, that the Castro government cadres ''are not filling up the beds the way they thought.'' Service remains bad, efficiency is poor and
  the numbers of tourists who come back to Cuba a second and third time are not high, he said.