Arrested Metamorphosis

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Over a year ago, in two articles titled “A Living Wage?” and “The Metamorphosis” in the December 2011 and March 2012 issues of Liberty, I reported on the proposed and partially implemented economic reforms of the Castro regime in Cuba. Included was an analysis of their impact by Luis R. Luis, former director, Latin America Department, of the Institute of International Finance and chief economist at the Organization of American States (OAS). Luis and The Economist have recently provided an update, which I think only fair to pass on.

The reforms allowed more small private businesses, shifting labor from the state to the private sector, thereby freeing selected retail prices and improving management of state enterprises. They also permitted the purchase and sale of residential housing and cars among private parties. Additionally, enabling legislation was passed to encourage joint development ventures with foreign investors.

A couple of years back The Economist reported that Cuba’s internet speed was the second slowest in the world, behind the island of Mayotte, a French territory of around 200,000 people.

One notable reform passed since the original proposals purports to allow Cubans to travel abroad. In practice however, it’s an Enganche-22 for perfectly logical albeit unreasonable reasons. Since the Cuban government provides everyone with a “free” education, it claims a lien on the benefits of that education. Graduates’ expertise and earnings are subject to strict state controls. Travel abroad is regulated according to how essential the state deems one’s job to the economy. As you might guess, with the Cuban economy treading water, most jobs are considered essential. The perverse result of this policy is that those fortunate enough to be able to afford and desire foreign travel, are unlikely to benefit from the new freedoms; while those who can’t afford to travel and are unlikely to apply for a visa are the main beneficiaries. Now you know why Orlando’s Disney World’s queues haven’t been lengthened by Cuban tourists.

As of June 4, those denied actual visas will have unlimited access to virtual travel. The Christian Science Monitor reports the opening of 118 public internet providers across the island. However, the $4.50 per hour cost might prove prohibitive. The average salary in Cuba is $15 per month. Service speed is another impediment. A couple of years back The Economist reported that Cuba’s internet speed was the second slowest in the world, behind the island of Mayotte, a French territory of around 200,000 people just northwest of Madagascar in the Indian Ocean. Facebook is not bracing for a slew of new Cuban accounts.

Nearly all the other reforms include such self-correcting provisions. In Gauging Cuba’s Economic Reforms (May 2013), Luis R. Luis gives us an update. He uses the Transition Indicators of the European Bank for Reconstruction and Development (EBRD) to measure progress on the road to a full-blown market economy. But he demurs that his approach is inappropriate because official government policy firmly states that Cuba is not pursuing a “transition” to a market economy. As Raul Castro famously declared in 2009, “I was not elected to restore capitalism to Cuba.” Luis justifies his approach stating that, “Nonetheless, it is quite useful to make an analysis of the present state of Cuban reform as if it were on the road to establish a market economy and to provide a comparison with transition economies in Eastern Europe, Central Asia and the Near East as measured by the EBRD indicators.”

So how does Cuba score? The EBRD rating scale is calibrated from 1 (little to no change) to 4+ (for fully liberalized market economies). Luis gauges progress in six policy areas.

  1. Large scale privatization: Cuba scores 1.
  2. Competition policy: Cuba scores 1 — no competition legislation and institutions.
  3. Trade and foreign exchange system: Cuba scores 1.2, meaning that there are widespread import and/or export controls.
  4. Small scale privatization: Cuba scores 1.5
  5. Governance and enterprise restructuring: Cuba scores 1.7. A score of 2 is moderately tight credit and subsidy policy; weak enforcement of bankruptcy laws; and little action to strengthen competition and corporate governance (Luis warns that his grade in this area is probably generous).
  6. Price liberalization: Cuba scores 2 — some lifting of price controls, but with substantial state procurement at controlled prices. Still, more progress has been made in this area than in any other, especially on retail pricing by private farmers and the self- employed.

For a grand total of 8.4 — below any of the 34 transition countries where indicators have been calculated using the EBRD methodology. For comparison, the next lowest ranking is achieved by Turkmenistan with a 10.7, followed by Belarus at 13, and Uzbekistan at 13.7.

Comparing price liberalization with all the other items, a cynic might conclude that the only benefits of the reforms to the Cuban man-on-the-street are price hikes. Luis summarizes that, “The pity is that Cuban policy as stated appears to aim at maintaining a low score.”

In spite of Fidel Castro’s declaration that golf was a “bourgeois” hobby unsuitable for communists, the government has just given the go-ahead to a new $350 million golf resort.

And what about the proposed and existing foreign joint ventures? I’d previously reported that several foreign businessmen had been arrested for engaging in corrupt practices: paying wages and bonuses to employees above the legal limit. The Economist drolly reports some progress in the status of the jailed managers: “Now, in a move which could be a precursor to their release, they are about to go on trial.”

As to the real estate tourism developments, not many shovels have broken ground. But that’s no impediment to forging ahead with more plans. In spite of Fidel Castro’s declaration after he took power that golf was a “bourgeois” hobby unsuitable for communists, and building upon most of the island’s existing courses, the government has just given the go-ahead to a new $350 million golf resort near Varadero. It’s “the start of a whole new policy to increase the presence of golf in Cuba,” declared a spokesman. Fidel’s son Antonio, garbed in a comandante’s olive green fatigues and sporting a full beard, even posed for a photo putting on a green. Antonio Castro then went on to win a promotional golf tournament staged by Esencia, the British joint venture company developing the Carbonera Club. The resort will also include residential properties available for purchase by foreigners.

Plans to increase shipping and storage capacity at ports have inched forward. Brazil, through its Brazilian Development Bank (BNDES), has provided credits of over $800 million for the expansion of the port of Mariel and related infrastructure. “This seems generous and it involves the well-connected Brazilian construction giant Odebrecht,” according to Luis. The government has also approved construction of a 1,300-berth marina near Varadero, which — if developed — would be the largest in the Caribbean. Finally,The Economist reports that the BNDES is also providing funds to upgrade the island’s airports.

We see that the Cuban government treats its people as if they were a dog in training, giving them tiny tasty tidbits accompanied by lavish verbiage. One Cuban housewife told a radio station, “something is better than nothing,” adding “the majority is not going to stop eating just to connect to the internet.”




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