India: Great Expectations

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In 1991, under pressure from the IMF, India opened some industrial sectors to private companies and removed several licensing requirements. Private cellphone operators, banks, and airline companies started to appear. Soon, private banks were so customer-friendly that they would send someone to your home to help open an account. If you wanted more than $400 in cash, they delivered it free of cost. If you had a complaint, an employee would come to meet you in person within hours — wearing a tie, even in sweltering heat. Mobile phone companies provided outstanding service and, within years, at an enviable price. They delivered my SIM card to my home. If you wanted a new car, you did not have to worry about going to their showrooms. They came to you. Local airlines served great food and drinks, and were manned by bubbling youths full of passion for success. Foreign companies looking for competitive, English-speaking young people set up their operations in India.

Today, much of this lies in ruins. You have to keep chasing these private banks. Their websites are unfriendly, and they deduct money from your account without first informing you what they are about. An account holder stays away from credit cards, unless he really needs them or must show off; yet he still gets credit cards sent to him with yearly fees charged to his bank account, all without his approval.

The Indian government is a vicious, insensitive, passionless, totally corrupt, utterly stupid, and spineless organization, made up partly of psychopaths and partly of crooks, from top to bottom.

Airlines are marginally fine — with sulky services — as long as your baggage doesn’t go missing or a delay doesn’t make you miss your connecting flight. When my baggage went missing, so did the sleek-looking customer agents, for no one wanted to take responsibility. I recently discovered that the biggest mobile company now has no customer service number where you can talk to a live person. You must visit their office. If you deposit cash after your SIM was slated for disconnection (which of course you would not have been informed about), it will have disappeared into a black hole, from which a refund is virtually impossible unless you waste a horrendous amount of time. If the front-line agent has some figment of humanity (which is quite a rarity), he will tell you not to try getting your money back, for he might see the pain you would suffer trying.

Meanwhile, foreign companies started to realize that the costs of doing business were much higher than they had anticipated. They found that looks were deceptive. The English-speaking employees lacked skills, productivity, work ethic, and curiosity. Call-centers started to move to the Philippines. India stayed at best a back-office hub.

On earlier occasions, when I faced problems with Indian companies, I would report them to consumer forums, or write in to the complaint sections of the media. But I soon realized that despite any compensation I received, I spent so much time fighting the insensitive ears of these private companies that the project was cost-prohibitive. These days, if the money involved isn’t much, I forgive and forget, a sign of greying hair and loss of idealism. If what is involved is substantial, instead of fighting in consumer courts, I look for the most efficient strategy. If the Indian company is a subsidiary of a foreign company, I start by calling their CEO's office. When the Indian arm of a Korean refrigerator company refused to do anything about a problem, by calling their Korean office I got a new refrigerator. When a subsidiary of an American company gave me a faulty air conditioner and did nothing about it, I called their CEO in the US. I told his secretary that I would call twice a day to ensure that I got to speak with the CEO. Then their Indian arm worked so well that even the best anywhere in the world would have been impressed. But I have digressed.

In a mere few years, private companies became more like state-owned companies. In some cases one prefers state-owned companies, where at least a bribe does the job. Why?

In general, the "profitability" of Indian companies, particularly the big ones, is a reflection not so much of wealth-creation but of political backing, of their ability to find loopholes in regulations, and of outright theft, often from the poor section of society.

How things go wrong

The Indian government is a vicious, insensitive, passionless, totally corrupt, utterly stupid, and spineless organization, made up partly of psychopaths and partly of crooks, from top to bottom. Most have very numb or dead brains. They exist in dirty, unhygienic, and terrible environmental conditions, for it is they who do the cleaning. I can recall very few encounters with bureaucrats or politicians in which a bribe was not demanded. Moreover, you must grovel and beg in front of these (figuratively and literally) diseased people. Even then there is no guarantee that they will do the job.

I remember that on many occasions the bribes were not about approving something, but just to release my files so that I could take them myself to the next diseased creature. Only a citizen whose mind has not been destroyed and numbed would not feel humiliated by what he goes through at government offices. Not only is the bureaucrat after money, but he relishes the act of demeaning citizens, in a corrupt attempt to make up for his deep-rooted inferiority complex and self-hatred.

Demeaning others leaves the Indian bureaucrat feeling good about himself, at least for the moment. The irony is that all this makes him seriously sick, physically, mentally, and spiritually. His children go astray and he never understands why. As you discover reading The Lord of the Rings, in a tyranny, there is no single tyrant. Everyone is tyrannized by everyone else; everyone's spirit is subdued by everyone else’s. A bureaucrat must sit with people of his kind, who scheme against one another, forever wallowing in the rotting sewage of envy, hatred, and a strange kind of showmanship. In reality, however, they have nothing to show but impotence, for they never create anything useful or productive. They, their wives and kids, and even name-dropping relatives, show off their status in an exaggerated way, through noise, heavy-handedness, armed goons in costumes, and big cars with sirens.

Not only is the bureaucrat after money, but he relishes the act of demeaning citizens, in a corrupt attempt to make up for his deep-rooted inferiority complex and self-hatred.

A casual observer might believe that all you have to do is get rid of such bureaucrats. All you have to do is to change the party in power and streamline regulations and remove corruption through an empowered constitutional authority that politicians cannot touch.

Why then why did private companies fail to sustain their proper character?

The problem is much deeper than an observer might imagine. It is a problem that cannot be reached by the typical libertarian prescription of reducing the size or composition of government. When the prescription is applied, things don’t not turn out much better; and the improvement certainly does not last.

What most people fail to understand is that the state is little more than the sum total of the collective mind.

In India, even a perfectly created product has a very short half-life. My new gym has grown old within months. The dust piles up; the equipment rusts, rather rapidly. My new car earned a big dent, the day I bought it. Every vehicle gets smeared with dents. I don't know anyone who hasn't had several injuries and close calls with death. Day-to-life faults happen with amazing regularity, a frequency that could never have been imagined or statistically expected. The most resilient equipment burns away if you do not think of using a surge protector, for the electricity company will increase the voltage by misconnecting the wires at the main poles. Normal cars need to be redesigned to ensure that they work because, for example, there is almost universal adulteration of petrol. Refrigerators that are designed to keep working as long as they are plugged in stop cooling when water condenses and freezes in their air-pipes as a result of frequent electricity cuts.

Every time you take anything for repair, even a minor one, you get a patch-up job. You are looked upon with amusement if you ask for a good, clean job. No self-respecting workman would want to have anything to do with you, irrespective of the money you offer. Expediency is the mantra. If ever there is a serious repairman, he needs immense cognition to isolate the problem. The others patch whatever they can get away with patching. When you tinker with a system or an individual piece of equipment, trying to correct the problem, you often create more problems, for your tinkering — however innocent it may be — undoes the other patches. This situation exists not just with equipment but with absolutely everything in life. Most Indians waste a very large part of their day putting out existential fires. My five hours of no electricity today, in what is among the best neighborhoods and those most catered to, are one of my smaller worries, for at least I know what the problem is.

So what is the deeper problem?

Unfortunately, but predictably, the bureaucrat described above is merely a reflection of the larger society. He is the tip of the iceberg. This is always the case, but what most people fail to understand is that the state is little more than the sum total of the collective mind. The visible state — the government — and its tyranny is a symptom of the underlying problem: a society that breeds and sustains the statist poison. Individual Indians will decry corruption, but virtually everyone will pay a bribe to gain an unfair advantage over others or take bribes by rationalizing it away. Even written contracts have no value. It is considered fair game if someone steals your money and gets away with it. Most people will not rent their property, for they fear it will not be returned. Most people, even the guy on the street, have a perfect prescription for how I should live my life and will offer it to me unabashedly. Respect for others as individuals and their properties is a completely alien concept. This, combined with fatalism (a product of a superstitious mind that is immune to the concept of causality), is the reason behind the chaos on the roads and every other area of life. I contend that the Indian road is a visual representation of how the Indian mind works.

You cannot have a small government in a society in which everyone wants to control everyone else's life, where no one can be trusted to do a job properly, where the concept of how to make money is not wealth-creation but manipulation and theft. You cannot avoid building a large and corrupt police force in a society where the individual cannot be trusted. You cannot stop a complicated structure of regulations and government in a society in which individuals cannot think straight, clearly, or rationally.

If someone wants a real, sustainable change he should work in the arena of critical thinking and individualism, not on imposing superficial Western ways.

A tyrannical government is a product of a tyrannical, corrupt, and statist society. Even before the society changes, it is the individual who must change. A free society is unsustainable without free-minded individuals. Those who want real change must work on the root: the individual.

The general totalitarianism, indolence, dishonesty, lack of work ethic, confused thinking, irrationality, superstition, and lack of respect for other people have too much momentum on their side to let private companies stay good. The initial euphoria, mostly of a drunken kind, a catharsis, lasted for no more than a few years. What you culturally see in India is not different from what the West was like perhaps 500 years back. India's problems cannot be dealt with unless the society has gone through the reformation, enlightenment, and scientific revolution that happened in the West.

What differentiates the West from "the Rest"

For vices to be replaced by virtues — the way in which a rational individual perceives them — the concept of reason must take precedence. For those who do not think by means of reason, for those whose culture is not based on it, the vantage point from which vice and virtue are considered is very different. For such people, touching a low-caste person to help him might be a sin, and forcefully occupying the property of a poor person to build a temple might be a virtue.

Lacking appreciation of all this, the US government — assuming it was well-intentioned — spent many years lavishing its resources in attempts to bring democracy, the rule of law, etc., to societies where such constructs have mutated back to what they originally were. Those truly interested in bringing a change must understand that outside the West, the mainstream's way of thinking and conceptualizing the world, its way of imagining and perceiving the world, and its resultant aspirations and motivations are driven by undercurrents that are essentially pre-rational. It is the undercurrents that must be changed. They must, indeed, be replaced by reason and individualism.

The problems of India are extreme, but they aren’t just India's problems.

In my travels around the world, I am reminded of this again and again: there is the Western civilization, which values the individual and the concept of reason; and there is the rest, the area of the world in which most people haven't a clue about what individualism means or, if they have a clue, abhor it, even after hundreds of years of interactions with the West and even after the advent of the internet, easy information, and cheap traveling.

Reason and individualism are a rare fruit, a very expensive one. Without it, democracy, the rule of law, and regulations against excessive state power have limited and mostly unfavorable effects. That is the problem of India today.

And not just India. Most places outside the West are in a mess, living a contradiction, having some material development but lacking the necessary basis in reason and individualism, and hence of ethics. Even the West has increasingly lost these concepts. This might be making the world an extremely unstable place. But, again, I digress.

If someone wants a real, sustainable change he should work in the arena of critical thinking and individualism, not on imposing superficial Western ways, trying merely to reduce regulations or reduce the size of the public sector.

The future of India

With China slowing down, Russia failing to impress, Brazil in stalemate, and the economies of the West in stagnation or decline, the focus of those looking for economic growth has moved to India.

Despite producing some of the largest numbers of so-called scientists, engineers, and so forth in the world, India is an extremely wretched country. Relatively speaking, a huge amount of economic growth has taken place since 1991, when it is believed that India started to open up — from GDP per capita of a few hundred dollars then to $1,625 today. In my view, the date when India started to change economically was a decade earlier. India had started opening telecommunications to impress visitors during the hosting of the Asian Games in 1982. This in turn opened channels for an easy import of information and technology through the telecommunications cable. Things developed from there. But now that the low-hanging fruits of imported technology have been extracted from the tree, India is stagnating again.

The mainstream media disagree, strongly. During the past year, the euphoria of the old days has returned to India. The stock market has recently been the highest ever. Foreign institutional investors are flocking again. They see India as the next China, ignoring the fact that India is one of the rare countries that hasn't had an event to shake off entrenched interests, social habits, and patterns of thinking during the past many centuries.

How Modi can change a country of 1.25 billion is something that no one really wants to think about, for these are times of euphoria.

Deaths of hundreds of thousands every year in avoidable calamities of course haven't triggered any shakeup, and hence cannot be called revolutionary. Also, it pays to remind ourselves that the so-called independence movement in India was a political event. As a rule of thumb, a political event is an active avoidance of introspection. India's certainly wasn't a cultural movement or even a shakeup. In a way, it was the antithesis of a shake up. Before that, entrenched interests had participated in the revolt against what came to be known as the Bengal Renaissance, which the English supported. Democracy allowed the basest of elements to rise to the top, making entrenchment worse and a possibility of a shake up more remote and entangled.

India's newly elected prime minister, Narendra Modi, is behind today's grand hopes. Everyone is looking at him. Alas, Indians are so badly trained (and unable to think straight and clearly from the perspective of reason) that supervising a mere few of them often feels impossible. How Modi can change a country of 1.25 billion is something that no one really wants to think about, for these are times of euphoria. Hence, the cycle starts again.

There are far too many hopes about this deity. Modi's deification is perhaps the most visual symptom of India's problems: the society looking up to someone or something external to bring salvation. Today's youth have far too many material expectations, taught them by the TV, but not enough productivity. This might be a very dangerous cocktail in the making. Even if it isn’t, I see no way for India to experience meaningful change unless it gives up its irrationality and superstition. I see nothing on the horizon that is capable of teaching critical thinking to the youth.

For those who care to imagine, India may be, culturally and intellectually, where China and Russia were in the late 19th century. Then, India was indeed going through its own renaissance — the Bengal Renaissance — until it was nipped in the bud by half-baked, uneducable people (Gandhi, Nehru, etc.) who went to study in England and learned nothing more than what their irrational minds could accept: intellectual rationalizations for socialism. They neither got nor were capable of getting even get an inkling that what had made England great was reason and individualism. A bottom-up renaissance was corrupted into a top-down design to change India, the so-called independence movement.

At some point, India has to pick up the threads where it left them, with the premature end of its renaissance. Would that require it to suffer what China and Russia suffered in the early 20th century? It shouldn't, and I would hate to see that happening, but is there any other possibility that human history shows?




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The Metamorphosis

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When the Cuban people awoke last April 2011, they did not find themselves transformed into giant insects. That change had already occurred. Over the course of the previous 50 years, Fidel Castro had transformed the island into one giant beehive or ant colony laboring single-mindedly for his vision of a Caribbean utopia. What they did wake up to find was something entirely novel: a vibrant options market in 1950s vintage Detroit automotive classics.

In “Cuba: Change We Can Count On?” (Liberty, December 2010), I reported the passage of enabling legislation by the Cuban government to guide the Congress of the Communist Party in implementing far-reaching reforms to the economy. Though the fine print of implementation had yet to be worked out, a big change was decreed. It included the legalization of self-employment in ”dozens” of areas, the privatization of many small state-owned businesses as cooperatives, and the establishment of limited property rights in real estate and some bits of movable property such as cars, boats, and appliances, many of which can now be bought and sold.

The impetus for all this hope and change was money. Cuba’s economic and fiscal health was dire. The reforms hoped to eliminate one-fifth of the government work force (thereby cutting expenditures); incentivize former government employees into joining taxable petit-capitalist enterprises (thereby raising revenue); and — along with liberalized foreign investment reforms — stimulate the economy and improve Cuba’s fiscal prospects.

In April 2011 the details of the new legislation were announced. In a recent paper entitled “Economic Impact of New Employment, Tax and Financial Policies in Cuba,” presented at the XXI Annual Meeting of the Association for the Study of the Cuban Economy (Miami, August 2011), Luis R. Luis, former director, Latin America Department, of the Institute of International Finance and chief economist at the Organization of American States (OAS) in Washington, applied macroeconomic analysis and a crystal ball to predict the effects of the reforms.

To a populace that has never paid taxes, much less dealt with the fine points of business expense deductions and tax accounting protocols, the entireexperience must have been far from “liberalizing.”

Given the market sophistication of the Congress of the Cuban Communist Party — akin to that of the Creation Science Institute, sequencing the malaria genome — the reforms are still a work in progress. They aim primarily at improving state finances, but the use of price controls, size limits on firms, confiscatory tax rates, complicated monthly payment requirements, and petty regulatory activity “could result,” as Luis drily observes, “in even larger evasion than is usual in developing countries by single proprietorships and the self-employed, [and] will also result in many activities taking place wholly or partially underground, limiting tax revenue and fostering operation of undersized and inefficient activities.”

The very first modifications to the April bill were made a scant few weeks later, following a strike by cocheros (horse cart drivers) in Bayamo, Granma Province (née Oriente Province). The provincial capital is immortalized in Cuba’s national anthem as the birthplace of independence. It is a place redolent with symbolism, and a situation best handled with care. Bayamo cocheros, members of one of the newly privatized occupations, discovered that when they added their new tax liability to their clients’ bill, demand plummeted. So they went on strike.

The new self-employment taxes consist of four categories: social security tax, personal income tax, sales tax, and payroll tax. Let’s look at each.

1. The social security tax is levied at 25% of the tax base (in the US, it’s about 13% — with half paid by the employer). So far, so progressive.

2. The personal income tax gives a whole new meaning to “taxing the rich.” Marginal rates rise to 50% for annual incomes of $208! When combined with the social security levies, the personal tax nears 60%. Mindful of the reader’s attention span, I will skip all the qualifying fine print, ceilings, and permutations that complicate the base tax rate — except for business expenditures, aka deductions. These are limited to 20% or 40%, depending on the enterprise.

As Luis notes: “These rates discriminate against enterprises whose cost of inputs exceed[s] 40%, which will lead to curtailment of activity, firm creation, and widespread tax evasion.” Cocheros, for some unknown reason,were limited to a 20% business expenditures deduction.

To a populace that has never paid taxes, much less dealt with the fine points of business expense deductions and tax accounting protocols, the entireexperience must have been far from “liberalizing.” It was reminiscent of a farcical zarzuela, the Spanish version of a Gilbert and Sullivan operetta, with a dose of Monty Python thrown in for gravitas. The Congress responded by raising cocheros’ allowable deductions from 20% to 40%.

3. Sales taxes for all products are levied at 10%, except for farm products, which are taxed at 5%. Simple enough.

4. The new payroll taxes are not only complex; they (along with the other taxes) actually, as Luis observes, “pose a formidable constraint on employment.” The following summary — through no fault of Luis — is beyond this author’s ability to make intelligible, much less fun:

A new 25% payroll tax is instituted. The base of the tax is the overall wage bill except that there is a minimum taxable amount equal to a multiple of the average wage for specific workers calculated by the appropriate local labor office. The base is made progressive as the minimum taxable amount increases with the size of the payroll. Thus for firms with 1 to 9 workers, the minimum equals 1.5 times, rising to 2 times for those between 10 and 15 workers and to 3 times for those firms that have more than 15 employees.

So much for the new taxes. Will Cuba’s vision of self-employment provide the fiscal salvation the government so desperately needs, or is it just a tempest in a teapot?

If the government succeeds in shifting 250,000 government workers into self-employment, and they pay all their taxes, Luis estimates a $40 million revenue windfall for the government (not to mention all the supplies and material that would not be pilfered or stolen from state companies and offices, as supplements for employees’ meager salaries — a point important enough that Luis footnotes it in his report). But so far, no more than 50,000 state employees have taken the bait.

The eminent French art critic and father of surrealism, André Breton, visiting Cuba in the late 1920s, observed that, “Truly, Cuba is too surrealistic a country to be livable.”

Furthermore, it’s impossible to predict the tax compliance rate, which, worldwide, is low for the self-employed. “However,” Luis observes, “it is expected that the fiscal authorities will enforce the tax code with some vigor. Undoubtedly, the high tax rates will act as an incentive to evasion and to a reversion of business to the underground economy. Sizeable underreporting of revenues is to be anticipated.”

In 2011, Cuba’s population was 11 million. As of mid-May 2011, about 300,000 people were self-employed (excluding farmers); or (with slightly different numbers), never more than 3.5% of the labor force. Though the passage of the new legislation doubled the number of self-employed, a large percentage of them were people who came out of the black market closet and hope to become legal.

Luis’ analysis bears some contextual elaboration because, as Miguel Bretos, author of Matanzas: The Cuba Nobody Knows, has stated, “Those seeking to understand Cuban history in conventional ways are doomed to frustration.” He was referring to the eminent French art critic and father of surrealism, André Breton, who, visiting Cuba in the late 1920s, observed that, “Truly, Cuba is too surrealistic a country to be livable.”

What makes the details of the reforms so surreal is their schizophrenic set of objectives. When first proposed, the reforms were compared to the Chinese model: an infusion of capitalism to build wealth, with the Communist Party retaining absolute power. But, as the Chinese are discovering, when laissez faire markets infect a regime of total power, the liberty virus proves hard to cure.

The Chinese are a practical people with few Maoist ideologues left among them. No one, from the highest party apparatchik to the lowliest peasant, objects to becoming richer. Meanwhile, power is being incrementally ceded through a phenomenon usually foreign to absolutist regimes: limited but sensitive responses to popular dissatisfaction with corruption, judicial arbitrariness, environmental degradation, out-of-control eminent domain, and even — very slightly — the transfer of some political power. (For example, provincial officials in Wukan, Guangdong Province, are allowing local elections to take place.) Moreover, the Chinese are rather comfortable with duality; witness the Taoist concept of yin and yang.

It’s not quite so simple for Cubans.

The competing objectives of raising capital through economic liberalization while retaining absolute power are — in Cuba — complicated by a third factor that tips the reforms from the bipolar into the surreal: an anti-capitalist idealism so fervent that it equates private employment with involuntary servitude, profit with depravity, and self-employment with crimes against society. These attitudes not only saturate the nomenklatura — with their source and apogee in the moralist-in-chief, Fidel — but also pervade the majority of the Cuban population. Cubans are poor and unhappy; they sense that something is wrong with the system; they are starving for change. Yet they idolize St. Fidel’s idealism and venerate him as the conscience of the Revolution.

As the Chinese are discovering, when laissez faire markets infect a regime of total power, the liberty virus proves hard to cure.

National character, along with its kinfolk — ethnic, religious, cultural, and racial character — has fallen into disrepute as a way of defining a population. Whatever validity it might once have possessed has evaporated. It has been dismissed for its oversimplification, unscientific methodology, racist undertones, and complete absence of political correctness. But it retains a great deal of insight and literary utility, when considered informally. Hedrick Smith was definitely onto something when he described the Russian character as a cross between German and Mexican temperaments.

Cuba was ruled by Spain for over 400 years — longer than any of its other colonies. During the Latin American wars of independence in the 1820’s, Cuba remained staunchly Spanish. By the time it won its independence in 1902, it was considered an integral part of Spain. That date is so recent that in 1966 the last surviving Afro-Cuban general of the War for Independence, Generoso Campos Marquetti (by then living in the US, in exile from Castro’s revolution), was asked to testify before the US Congress during hearings investigating the nature of the Castro Revolution. It’s as if Nathanael Greene or Henry Knox had still been alive within our living memories, to comment on US current affairs.

The Cuban character is a diversely spiced mélange. Settled by immigrants from Galicia, Asturias, Catalonia, and the Basque Provinces in northern Spain, Cuba was infused with a strain of rigid, dour, doctrinaire, and humorless temperament. Fidel Castro is a second-generation Galician — he can’t dance, carry a tune, or tell a joke. Though he would reject the comparison (in spite of his early flirtations with Falangism and Fascism) Castro has much in common with the long-lived and long-ruling Francisco Franco and his Minister of Propaganda, José Millán-Astray — both Galicians.

General Millán-Astray was a serious parody of himself. Founder of the Spanish Foreign Legion and a decorated war hero who’d lost an arm and an eye, he personified Spanish fascism. He was obstinate and ruthless, yet impulsive; flamboyant, reckless, and self-aggrandizing. At rallies he resembled the mad Dr. Strangelove. Wearing one white glove and a black eye patch, he would exaggeratedly throw out his one arm in the Nationalist salute, while shouting his telltale mottoes, “Viva la muerte!” ("long live death") and “Death to intelligence!” ("death to the intelligentsia").

Cubans are poor and unhappy; they sense that something is wrong with the system; they are starving for change. Yet they idolize St. Fidel.

Ladino and Canary Islands immigrants added cunning, perspicacity, and some levity to the Cuban national character; Andalucians, Valencian gypsies, and West African slaves tempered the whole with rhythm and a wry sense of humor. Provincial and (in the case of the West Africans) tribal clubs, mutual aid societies, and other ethnic affiliations lasted well into the 1960s.

The Spanish component of the Cuban character alone suffices to explain the paradoxes inherent in holding multiple contradictory perspectives. Pepe Azcarraga, a 91-year-old Spaniard from a small village in Aragon (but now a retired college professor living in the US), personifies this Weltanschauung. He recounts that once, as a teenager, he accompanied a friend to the dry goods almacén to buy towels. On the way back, he helped her carry the goods, stacked on his doubled arms. As he passed by his own house, his mother, perched on the second-floor balcony, spotted him on the cobbled street below supporting the pile of towels in front of him as if they were the Blessed Sacrament and he was leading an Easter procession. She beckoned to him angrily. Puzzled, he detoured into his house.

Once inside, she asked him what the diablo he thought he was doing carrying a pile of towels for all the world to see. Before he could answer, she walloped the fear of propriety into him, moaning that “the whole town will think the Azcarraga family needs towels!”

Pepe tells the story without a hint of irony, as if his failure to anticipate the finer etiquette of towel buying in a gossipy small town were an obvious sign of his stupidity. At different times, depending on the context of the conversation, he’ll call himself a socialist, a capitalist, a libertarian, or simply a man of the left. He and his immediate family sided with Franco during the Civil War — for the sake of order and stability. Yet as members of the local militia guarding the frontier against infiltration from Republican guerrillas holding out in the French Pyrenees after the war, Pepe and his friends, when off-duty, would cross over and (avoiding politics) socialize with the enemy, many of whom were friends, family, and acquaintances. They shared snacks, smokes, stories, and beer. A devout Catholic who attends Mass every Sunday, he is nonetheless skeptical of the existence of an afterlife — and he harbors a sense of unworthiness that keeps him from communion.

Pepe stands on the shoulders of giant, original, way-outside-the-box thinkers: surrealist artist Salvador Dalí, whose melting clocks epitomize the persistence of memory; philosopher Miguel de Unamuno, who introduced doubt to faith, and found that they got along just fine; writer Miguel de Cervantes, whose Don Quixote — the patron saint of hopeless causes — made tilting at windmills not only intelligible but honorable; and Grand Inquisitor Tomás de Torquemada (literally, twist and burn), whose auto da fés melted heretics in order to save them. To an Anglo-Saxon who can only shake his head in perplexity, like a mental centrifuge spinning to separate the conflicting strains, little of this intellectual anarchy makes sense.

Fidel Castro, the Cuban Communist Party, and their recent economic reforms embody this cognitive dissonance. Luis’ assessment is not sanguine: “It is evident from the multiple constraints, prohibitions, regulations and high taxes involved in the new measures the authorities are striving to maintain tight control over the liberalization process. These controls will dampen or even fully contain the output and consumption gains from market opening.”

And the controls are extensive. One-hundred-and-seventy-eight self-employment occupations have been legalized (up from 157); most require little or no capital (animal caretaker, hairdresser, locksmith, plumber, mason, mattress repairman). A few others, such as room renting (though not to foreigners, and no subletting) and transportation services (truck and taxi driving) imply greater use of property or equipment. Restaurants are now allowed 50 tables, up from 20. Capital investment is capped at $800.

Even the most touted reform, the buying and selling of real estate, is less than meets the eye. Ownership is limited to domiciles — one residence and one vacation home — and possession is limited to citizens or foreigners permanently residing in Cuba.

Additionally, the domestic portion of the reforms requires that all transactions take place in nonconvertible pesos. (Cuba has dual currencies: convertible and non-convertible pesos — one for tourists, the other for Cubans — both highly controlled.) Foreign investment in the newly allowed enterprises is forbidden; as are family and personal remittances (also subject to taxes), which must only be used for personal consumption. Wholesale activities, inter-provincial trades, and most intermediation among firms are also forbidden.

“Intermediation” — a fancy word to describe the place that banks (among other entities) hold between savers and investors: they take deposits, then lend them out to entrepreneurs. Cuba’s (official) private savings rate for the last six years is about 2% of income — not an important source of financing for new enterprises, though probably understated because of non-bank and in-kind savings. As Luis again drily notes, “Most bank loans are made to state enterprises. A vibrant self-employment sector would be helped greatly by access to credit from the banking system. This would require building-up a credit system, with an important role for micro-credits by local branches of banks with appropriate credit expertise . . . [as in] Asia.”

Fidel Castro is a second-generation Galician — he can’t dance, carry a tune, or tell a joke.

Any reforms along those lines are unlikely, because they would undermine the institutionalized apartheid system that attempts to minimize economic fraternization between Cubans and foreigners. Very few of the newly approved occupations affect the export or tourist sector, and the government monopoly on labor for joint venture and foreign enterprises has not been affected. It is surprising that the new employment and tax measures do not address Cuba’s external accounts, even though more foreign investment — under the pre-existing framework — is being attracted.

Luis boldly sums up his report with an estimate of the impact of the reforms on Cuba’s GDP. He admits he’s on shaky ground — with disclaimers, caveats, weasel words, and the assumption that many more black-market enterprises will come into the open. Despite the effects of government controls, he broadly predicts a 2% GDP increase as a low estimate, with a 6.4% GDP increase if all the hoped-for 250,000 state employees become successful entrepreneurs, make lots of money, and pay all their taxes.

The Cuban reforms are a tug-of-war among various conflicting objectives: on the practical level, increasing state revenue while maintaining total state power; on the philosophical level, allowing enough “human action” (in the Misesian sense) without diluting the “social justice” objectives of the Revolution by introducing greed, ambition, and a subversive focus on individuality.

On that last point — to paraphrase Charles Darwin, who, at the conclusion of The Origin of Species, foretold that “light will be thrown on the origin of man” — the Cuban reforms will shed much light on how far the capitalist goose that lays the eggs of prosperity can be starved, strangled, and robbed, without killing it.




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