Monday, November 24, 2014

Cuban Time Travel

HAVANA – For a United States citizen, the short trip to Havana requires navigating an obstacle course, owing to the trade and travel embargo that the US maintains against Cuba. It also turns out to be a trip to the past – specifically, to 1959.

Signs of this time warp are instantly apparent: the American automotive behemoths of the 1950’s stand out among the few cars on the streets in Havana. Most, obviously maintained with loving care, run well and look magnificent.

Unfortunately, the rest of Cuba’s economy and infrastructure does not show the same concern. Cuba has one of the world’s longest-lasting dual-exchange-rate systems: the dollar’s market value is 25 times the official rate of nominal parity (one peso equals one dollar). This means that those hotel or restaurant workers who can retain dollar earnings have incomes that are 25 times higher than those who cannot.

Cuba long ago developed skilled services such as medicine and education. But doctors and professors earn far less than those who join the fledgling private economy. The latter includes 178 approved job types; by design, none – the choices include waiter, bathroom attendant, taxi driver, auto battery repairman, mule driver, and wheelbarrow operator – makes use of an educated person’s skills. And most people are still employed by the state.

Perhaps Western-style consumer societies offer too many choices, but Cuba provides far too few. Most ordinary goods – from shoe leather to software – are rationed, which means that they are available only by waiting in line or going to the black market. Many goods are not available at all.

So how can such a system have survived for so long? Repression and fear alone do not explain it. In fact, free-market behavior, whatever its benefits, is not hard-wired into human brains, especially not when it seems allied with selfishness and corruption in undermining noble ideals like cooperation, fairness, and equality.

When the Soviet Union was collapsing, Robert Shiller, Maxim Boycko, and Vladimir Korobov surveyed residents of Moscow and New York regarding their attitudes toward free markets. Not surprisingly, many Russians’ responses would strike an economist as failing to appreciate the market’s virtues as a mechanism to bring supply and demand into equilibrium. For example, 66% of the respondents thought it unfair of flower-sellers to charge higher prices on holidays, when demand is much stronger and supplies may give out. (The surprising finding was that an equally high percentage of Americans thought the same thing!)

People in Eastern Europe eventually figured out that communism does not work, and that the market system does. If the US did not exist, or if the embargo did not exist, Cubans could do likewise: infer that something is fundamentally wrong with an economic system that involves so much time wasted and so many simple desires frustrated.

But, for many Cubans, the embargo has placed an alternative explanation at hand: Absent the embargo, many goods would be imported from the US, or produced at home with US inputs. Therefore, it must be the US and its embargo that is to blame for Cuba’s dysfunctional economy. The lesson is clear: the US should end its obsolete embargo.

Harvard’s Jorge Dominguez likens Cuba’s current dozy reform path to the expansion and contraction of an accordion’s bellows. Liberalization took hold out of economic desperation – the “special period” that followed the collapse in 1991 of the Soviet Union, Cuba’s long-time benefactor. The reform process then slowed – or even stopped altogether – from 1996 to 2005, partly because Venezuelan support made it less necessary.

Reforms have been renewed in recent years – now under the heading of “los lineamientos,” or the “guidelines.” For example, the government announced in 2011 that it would allow people to buy and sell houses. Similarly, farmers can now sell directly to the market, including hotels and restaurants, rather than just to the government.

One reason for the recent reforms is that the more pragmatic Raúl Castro took over after his brother Fidel became ill in 2006. Another reason, however, is that Venezuelan financing has lately begun to level off, and its future appears uncertain.

In 1995, Cuba’s minister for heavy industry, referring to the country’s heavy economic dependence on the US until the 1959 revolution and heavy dependence on the Soviet Union until the 1989 fall of the Berlin Wall, vowed, “We will never let this happen to us a third time.” Yet that is precisely what is now happening with respect to Venezuela.

For now, Cuba is casting about for a new model. The example of Sweden shows that a strong social safety net can be combined with a thriving private economy. But what Cuba seeks is a model of transition from communism. China, beginning with Deng Xiaoping’s reforms, is the obvious choice – that is, if soaring income inequality is not as important as maintaining Communist Party control and ensuring that Cuba’s leaders never have to admit that their official ideology has expired. (After all, their slogan has long been “Socialism or death!”)

Cubans are proud people who are mindful of their history of subjugation by larger powers. In this respect, they resemble the Chinese, who have energetically converted to capitalism while leaving the giant portrait of Chairman Mao in Tiananmen Square.

Four developments will soon occur, probably at approximately the same time: the aging Cuban émigrés who have dictated US policy regarding their homeland will give way to the next generation; the Castros will pass from the scene; US-Cuban relations will be normalized; and one of the world’s two remaining museums of communism will become a rapidly growing, service-exporting market-based economy.

At that point, lineamientos and models will no longer seem necessary. That said, I hope that Cuba’s government undertakes an entirely appropriate intervention before the flood of American money and tourists arrives: a zoning law in some designated part of Old Havana that bans cars built after 1959.

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    1. Portrait of Jeffrey Frankel

      CommentedJeffrey Frankel

      To R.Jamil Jonna:
      No, I am not convinced that my sentence which you point to does in fact need qualification: "People in Eastern Europe eventually figured out that communism does not work, and that the market system does." To me, it seems clear that communism did not serve the people of Eastern Europe. or the Soviet Union, or China well for the many years that it was tried in those places (and cuba) -- and not just because of a couple of misguided personalities (Stalin, Mao...) but for reasons that are easily seen as being intrinsic to the system. I don't think these countries experienced a lot of social health or an economy that worked well for them.
      Of course, the United States has all kinds of problems. It seems to me that a mistaken policy that has led to such a high rate of black incarceration is the general practice of imposing prison sentences for possession of drugs like crack cocaine that are as long or longer than sentences imposed for more serious crimes. But it is not a problem of too strong a free-market orientation.

        CommentedR. Jamil Jonna

        Reply to Dr. Frankel: Thank you for the response. Our disagreement has to do with different interpretations of history, which of course cannot be avoided. Assuming one accepts the predominant cold war narrative, it would be hard to disagree with what you say.

        For a more critical perspective you might find it interesting to look over recent work coming out on Michał Kalecki, the great Polish economist that famously anticipated Keynes in most important respects; and who Krugman has recently taken notice of with regard to unemployment. I mention Kalecki because he strongly bucked the trend of communist economic policies that merely mimicked the West, in an endless (and, ultimately, impossible) effort to keep up in manufacturing and especially arms production (See, e.g., _Kalecki’s Economics Today_, especially part 4.) Kalecki also obviously made a very important contributions on the political economy of capitalism. I'm simply suggesting that there is more to the story, and certainly a great deal more to learn from figures like Kalecki, who transcend the narrow specialities typical of academia. (The latter's Collected Works, especially Vols. I & V, are the best place to start.)

        I certainly hope you don't repeat the rationale provided below on the race/incarceration question. Perhaps it was unintentional, but your comment clearly suggests that "mistaken policy" on drugs results in a significantly higher rate of black incarceration because blacks "use" or "traffic" in "hard drugs" at higher rates than whites. Thanks to a raft of studies in sociology we know with certainty that nothing could be further from the truth. Even if blacks and other minorities "used" or "trafficked" more (they do not), it is highly unlikely that it would explain the stark variation in incarceration rates. Chronically high unemployment—a persistent failure of capitalism, especially for minorities (and other precarious layers of the workforce)—on the other hand at least allows one to get closer to a comprehensive answer. (Discrimination in sentencing and race profiling have also both been clearly documented.) You should really look at Alexander's book as I'm sure something will surprise you.

        Of course you are correct that our drug policy is inane. My point, however, is that significant layers of the working population here in the U.S. are routinely "let down" by capitalism. Have you looked at deportation statistics lately? Does it not bother you that as quickly as we encouraged the absorption of workers from Latin America (mostly Mexico) we no sooner deported them when economic conditions turned sour; and conditions inevitably reach crisis proportions: such is the nature of capitalism.

    2. CommentedOliver R

      I agree with your article "Cuban Time Travel". The US embargo has given the Cuban government a get out of jail free card for the problems the country faces, as the government can blame the economic problems on the embargo. The embargo is now completely outdated: it was put in place during a time of great fear over the rise of world communism. If the US really wants Cuba to change, the best way to do that would be to increase trade with it: that would convince Cuba of the benefits of the market and encourage it to make reforms in that direction.

    3. CommentedR. Jamil Jonna

      Don't you think it would be reasonable to qualify this statement? Unless of course you are oblivious to the actual social health of "market societies" vis-á-vis other social formations. Certainly blacks in the U.S.—who suffer mass incarceration in no small part because the economy *does not work well* for the underprivileged—would take issue with your statement (see the recent book, _The New Jim Crow_). As would the great bulk of humanity who are daily strangled by the economic imperialism of the U.S. Ultimately it seems like your purpose is to defend capitalism—which makes sense because it needs all the defense it can get at the moment.

    4. CommentedJ St. Clair

      market based...let's based....the meaning of market based....

        CommentedJ St. Clair

        "But doctors and professors earn far less than those who join the fledgling private economy".....and soo...what is wrong with that....

        CommentedJ St. Clair

        "waiter, bathroom attendant, taxi driver, auto battery repairman, mule driver, and wheelbarrow operator – makes use of an educated person’s skills. And most people are still employed by the state.......and soooo....consider it as a union within the country...