Is Cuba Going Capitalist?

August 15, 2011

Who says dictators don't have a sense of humor? Cuba's Castros have an undeniably comic side, as evidenced by the regime's announcement earlier this month that it plans to provide agricultural advice to 14 Venezuelan states. It sounds like a bad joke. Would you take technical assistance from a government that has turned the chicken into an endangered species in its own country?

This raises the question of how seriously we ought to take Raúl Castro's announcement that he is about to "reform" the Cuban economy. The American press seems convinced. "Cubans Set For Big Change: Right to Buy Homes," the New York Times screamed on its front page on Aug. 2. "Now open in Cuba; Business isn't exactly booming as free enterprise expands, but the slumbering entrepreneurial spirit is starting to stir," said the Los Angeles Times on Aug. 7.

It sounds like a capitalist revolution. But is it really time to get in on the ground floor in Cuba?

History may provide some guidance. This is not the first time we have been told that the communist economy, paralyzed since 1959, is on the verge of a reversal. In 1986, as Fidel Castro convened the III Communist Party Congress, the Miami Herald reported that "dramatic changes are sweeping Cuba," including, the story said, permits to own homes. It is true that the regime officially blessed "home ownership." But those houses could not be sold, only exchanged. And Cubans never actually had legal rights to them, as became apparent when the state discovered that enterprising Cubans were making money by trading houses for profit under the table. A wave of confiscations followed.

The end of Soviet aid provoked another crisis, and by 1994 the regime was again promising economic liberalization. There was some. Taxi businesses and in-home restaurants sprang up. But as soon as some Cubans began to acquire wealth, Castro got nervous, because he understands that economic power translates into political power. Prices for licenses went up sharply, making it so costly to operate in the formal economy that many start-ups disappeared again.

In 2008, three hurricanes and the global financial crisis took a sharp toll on tourism and nickel prices, two of the island's most important sources of hard currency. Food shortages became more acute and the existing housing stock, which was in ruins, shrank. Raúl decided it was time to talk again about reform.

It took a while but Cuba finally made it official earlier this year: 178 tasks have been legalized. By the beginning of next year the government has also promised to make the housing market legal. Property rights and private enterprise are keys to economic development and the idea that Cuba would allow both suggests that the revolution is breathing its last. Yet is this time any different?

There are no details about what it will mean when Cubans are allowed to "buy homes." But given the arbitrary power of the state, it is reasonable to question the certitude of the property right. The real reason the regime wants to formalize the housing market probably concerns the national purse.

Right now Cubans are allowed to trade houses but since it is rarely an even exchange, there are also dollars—provided by the exile community—that flow in the black market. Castro, being short of foreign exchange, most likely wants to get in the middle of this transaction so that he can take a cut.

The strapped government also is looking for ways to unload part of the state work force. To ensure that laid-off employees don't starve, it wants to give them business "opportunities." But in a paper delivered at the annual meeting of the Association for the Study of the Cuban Economy here 10 days ago, former International Monetary Fund economist and ASCE founder Joaquín Pujol noted that at the end of 2009, "there were already 143,000 licensed, self-employed, although thousands more worked for themselves illegally." He also pointed out that "171,000 new business licenses granted so far this year went to people who were already out of work, suggesting that the vast reforms may not be enough of a safety net for the half-million people who are expected to be soon out of a government job."

This problem is exacerbated by the fact that since not everyone has an entrepreneurial nature, job creation by the gifted few will be important. Yet an effective tax rate for micro-enterprises that "could reach and exceed 100%," according to Mr. Pujol, will discourage hiring. Mr. Pujol also noted that despite Cuba's investments in education, there is no private "knowledge intensive" work that is legal, ruling out growth in the sectors of the economy that offer the most potential.

Free prices, property rights and incentives for innovation would signal real change. But those things would also put the regime's grip at risk. So instead it is trying to formalize and tax black market transactions to create jobs for state workers and raise revenues. The idea that this is capitalism would be funny too, were it not so sad.



Recent Articles

Date Title
8/31/11 Cuba Dissidents Ask Church to Stop Harassment by State
Reuters
8/31/11 Grammy-winning Cuban singer Pablo Milanes, in letter, blasts attacks on dissidents in Cuba
Associated Press
8/31/11 Web rumor on Fidel Castro’s death catches on
By Alfonso Chardy, The Miami Herald
8/30/11 Dissidents say police used tear gas in a raid, beat women
By Juan Tamayo, The Miami Herald
8/30/11 Cuban civil society fights to be heard
By Paolo Paranagua, The Guardian
8/30/11 A&K scraps Cuba tours after reviewing new U.S. regulations
By Gay Myers, Travel Weekly
8/29/11 Cuban singer Milanes’ first Miami concert marked with emotion
By Jordan Levin, The Miami Herald
8/29/11 From Dictactorship to Democracy: The Transition in Cuba Has Already Started
Yoani Sanchez, Huffington Post
8/29/11 Cubans may finally get to buy new cars
By Chris Woodyard, USA Today
8/29/11 Puerto Rico-Cuba Flights Resume After Decades
Associated Press
8/29/11 Updating Cuba's Economic Model
Omar Everleny Perez Villanueva, From the Island
8/26/11 NY Bank to pay $88 million for Cuba transfers
By Juan Tamayo, The Miami Herald
8/26/11 The secret life of Cuba's creative class: photographer Michael Dweck's allegorical narrative of seduction
The Art Daily
8/26/11 Cuba condemns U.S. court ruling on exile's compensation claim
Xinhua English
8/26/11 Cuba's Dual Currency System Provides a Way to Cheat Shoppers
Yoani Sanchez, Huffington Post
8/25/11 Get Cuba off the List of State Sponsors of Terror
Sarah Stephens, Huffington Post
8/25/11 Venezuela’s Chavez says he may undergo more chemotherapy, calls treatment ‘preventive’
Associated Press
8/24/11 Florida Court Awards $2.8 Bln to Anti-Castro Agent
Reuters
8/24/11 Post-Gaddafi, is Cuba next?
By David Roberts, Business News America
8/24/11 Raul Castro Showing Impatience at Slow Reform Pace
Reuters
8/24/11 We Now Know: The Real Enemies of the 1966 Cuban Adjustment Act.
Arturo Lopez-Levy, The Havana Note
8/24/11 Cuba Takes Over as Head of Disarmament Body
Associated Press
8/24/11 Blogger sends uncensored news to Cuban cell phones
By Juan Tamayo, The Miami Herald
8/23/11 Cuba Still On U.S. Terrorism List, but Ileana Ros-Lehtinen Wonders Where the Evidence Went
By Anya Landau French, The Havana Note
8/23/11 Controversy over Milanés concert is déjà vu with a few fresh twists
By Jordan Levin, The Miami Herald
8/22/11 Venezuela debuta esta noche en el Super 4 de Montevideo
8/22/11 Defections prompt calls for change in Cuban sports
By Anne-Marie Garcia, Associated Press
8/22/11 Cuba rejects continued inclusion on US terror list
Associated Press
8/22/11 Ladies in White attacked in Cuba, most violent since spring
By Juan Tamayo, The Miami Herald
8/22/11 The Stomachs of Strongmen
Ann Louise Bardach, The New York Times
8/19/11 Capturing Cuba's TV Culture
By Claire O'Neill, NPR
8/19/11 Debate in Cuba, Skeptics & Content
By Harolodo Alfonso, Havana Times
8/18/11 Pablo Milanes' Miami Concert Plan Drums Up Discord
Reuters
8/17/11 Rivera seeks to restrict some Cubans from returning to Cuba
By Juan Tamayo, The Miami Herald
8/17/11 First Americans in Cuba under easier travel rules
By Jeff Franks, Reuters
8/16/11 Hemingway Bar: Cuba's Clever Daiquiri Diplomacy
By Steve Clemons, The Atlantic
8/16/11 Post-Castro Cuba needs a democracy, not a theocracy
By Carlos Eire, The Sun Sentinel
8/16/11 Cuban dissidents say cops again beat women
By Juan Tamayo, The Miami Herald
8/15/11 Current Record
8/15/11 Many Cubans living abroad can’t return to Cuba
By Juan Tamayo, The Miami Herald
8/15/11 Singer Pablo Milanes Urges More Freedom in Cuba
Reuters
8/12/11 Cuba's Fading Fidel Castro Turns 85 on Saturday
Reuters
8/12/11 Cuba entrepreneurs grapple with taxes, an alien concept after decades of paternalism
AP, The Washington Post
8/11/11 Cuba’s Self-Employed & the Survival Struggle
Havana Times
8/10/11 Exile groups oppose Cuban musician Pablo Milanés’ Aug. 27 concert in Miami
Juan Carlos Chavez, El Nuevo Herald
8/9/11 Corruption again alleged in Cuba
Juan Tamayo, Miami Herald
8/8/11 Cuba travel suspended by U.S. tour company
Juan Tamayo, Miami Herald
8/8/11 Where Cubans Can Meet the Beatles at Last
Damien Cave, The New York Times
8/8/11 Engagement With Cuba Is Way to Undermine Communist Rule
Editorial Opinion, Bloomberg
8/7/11 WikiLeaks: Coast Guard officer is key U.S. man in Havana
Juan Tamayo, Miami Herald
8/7/11 In Cuba, free market proves easier said than done
Paul Haven, AP
8/6/11 Cuba opening to private enterprise spurs service sector start-ups
Tracy Wilkinson, Los Angeles Times
8/5/11 Cuba's famed cigar industry is heating up again
Marc Frank, Reuters
8/5/11 Cuba chops prices of agricultural equipment for newly authorized private farmers
Associated Press
8/5/11 Cuban Court Upholds Sentence for Jailed American
Reuters
8/4/11 US Releases More Classified Bay of Pigs Documents
Associated Press
8/3/11 Leahy lifts hold on democracy funds for Cuba
By Juan Tamayo, The Miami Herald
8/3/11 Cubans Set for Big Change: Right to Buy Homes
Damien Cave, The New York Times
8/3/11 In Cuba, capitalism thrives on Craigslist-like sites
By Ron Buchanon, beyondbrics Financial Times
8/3/11 Dissident economist says Raul Castro not serious about taking on bureaucracy
By Juan Tamayo, The Boston Herald
8/2/11 Cuba viaja con equipos completos al Mundial de Judo en Par's
8/2/11 Study shows best places to protect marine mammals
8/2/11 Russians look to Cuban offshore reserves
UPI
8/2/11 Drill, Bebé, Drill
By Coral Davenport, National Journal
8/2/11 Castro says he will ease travel restrictions on Cubans
By Juan Tamayo, The Miami Herald
8/1/11 The awakening of Cuba’s resistance movement
By Otto Reich, The Miami Herald
8/1/11 United DC-Cancun flight diverted to Cuba by odor
By Peter Orsi, Associated Press
8/1/11 Newly authorized Cuba trips sell out fast, run into controversy
By Kitty Yancey, USA Today
8/1/11 Home sales would be a sea change for Cuba
By Mimi Whitefield, The Miami Herald